In Part 1 of this series on moving to Canada we covered some of the key finance related differences between the US and Canada. Part 2 highlights some important things to consider doing before you move, and here in Part 3 we’re going to focus on actions and considerations after you’ve made the move. This information is focused on things you’ll need to do to maintain compliance, ways to optimize your finances, and common pitfalls you’ll definitely want to steer clear of.

Taxation

US Tax Filing Requirement

Most importantly, know that if you’re a US person (meaning a US citizen or Green Card holder) you’ll need to continue to file taxes in the US while you live in Canada. Because of the tax treaty, you likely won’t be double taxed on the same income. You’ll have to file in both countries, and the US will tax your worldwide income, but the taxes you pay in Canada will offset your US tax liability. We’ll talk a bit more about that in the next item.

If you last lived in a state that had a state income tax, you’ll need to file that as well, unless you have formally severed ties with that state. The process for doing this varies and some states (e.g. California) are particularly sticky. For example, California doesn’t recognize the Foreign Earned Income Exclusion (see the next item) and it also doesn’t recognize RRSPs, despite them being recognized federally.

Cross-border tax preparation is definitely an area where you should consider working with a professional. Line someone up well ahead of tax season, though, as cross-border tax experts are in demand and may not be able to take you on at the last minute.

FEIE vs. FTC

There are two mechanisms by which you can avoid double taxation when filing your US taxes: the foreign earned income exclusion (FEIE) and the foreign tax credit (FTC).

1. Foreign Earned Income Exclusion (FEIE) – The FEIE allows you to exclude foreign earned income (up to $126,500 for tax year 2024). This can only be used on earned income, and going this route precludes you from claiming the Child Tax Credit
2. Foreign Tax Credit (FTC) – The FTC gives you dollar-for-dollar credit for the foreign taxes that you paid to offset your US tax liability. This can be applied to passive income as well as earned income, and it enables you to also claim the refundable Child Tax Credit.

As parents living in Canada (a higher tax location), the FTC route works better for us, but individual situations vary.

File your FBAR and Form 8938

If you have US tax filing requirements and you have a total of more than $10,000 in non-US accounts, the US requires that you file an FBAR each year. This is done separately from your US tax return. Form 8938 is filed with your taxes, and has a higher minimum filing requirement than the FBAR, but it is another important form to file if you have significant foreign (non-US) assets.

File Form T1135

On the Canadian side of things, if you have non-registered foreign assets with a total cost of more than $100,000 CAD, you’ll need to include Form T1135 with your annual Canadian tax filing. Note that this includes US-domiciled investments (like ETFs) even if they are held at a Canadian brokerage. This filing requirement holds for everyone, regardless of citizenship.

Investing

Avoid PFICs

The IRS has punitive filing requirements for investments classed as Passive Foreign Investment Corporations (PFICs).  It isn’t illegal to invest in PFICs, but the filing requirements are so daunting (and expensive to have prepared) that you’ll almost certainly want to avoid them.

So what is a PFIC?  A PFIC is any non-US corporation that earns at least 75% of its income passively. There is some grey area around exactly what this includes, but many experts say that this would cover foreign-domiciled ETFs and mutual funds. Thus, to avoid them I would generally recommend holding your non-registered account in USD and investing in US-domiciled ETFs.

Because RRSPs are a recognized retirement account in the US you can hold Canadian ETFs and mutual funds in them, but in a TFSA these could potentially require PFIC filings.

File an election for Roth IRAs with the CRA

If you have a Roth IRA, the great news is that Canada recognizes its tax-free status.  To ensure that this happens, you need to do two things

1. File an Election with the CRA along with your first tax return
2. Do NOT contribute to the Roth IRA after becoming a Canadian resident.  If you do, you contaminate the account and all future growth becomes taxable.

Please see this article for a more thorough explanation of the process for moving to Canada with a Roth IRA.

Estate Planning

Estate planning as a US person in Canada is definitely an area where you’ll want to involve an expert. Even experienced estate planning lawyers can struggle with cross-border issues, so look for someone with cross-border expertise — a TEP qualification is a good place to start. And be prepared to spend at least a few thousand dollars on a proper crossborder estate plan.

At a minimum, if you have assets on both sides of the border, you’ll want coordinated wills in each jurisdiction, along with POAs and health directives that are valid in your home province and, potentially, also in the US states where you spend significant time. Here are a couple of things to keep in mind as you work through it.

Less Reliance on Revocable Trusts

In the US, revocable living trusts are viewed as a flow-through from a tax perspective, but that is not true in Canada. They require a separate tax filing (using Form T3) and can lead to some double taxation risks. In the before you move section, I recommended potentially collapsing any revocable trusts you’d set up as part of your US estate plan.

Trusts set up on the Canadian side can also be complicated if they involve people south of the border. For Canadian tax purposes, a trust’s residency is determined by the trustee’s residency. Thus, having a US relative as a trustee for a “Canadian” trust will also create issues. If you’re going to use trusts as part of your estate plan, you will definitely want to involve cross-border estate planning experts.

Bond Requirement for Foreign Executors

As we discussed earlier, Canada taxes estates on death, treating assets as if they have been sold (aka deemed disposition) rather than taxing beneficiaries who receive assets. To make sure local interests (the CRA, Canadian creditors, Canadian-resident beneficiaries) get their share before assets are removed from the jurisdiction, most provinces require a bond to be posted if a foreign executor is settling the estate. If you’re going to have a foreign executor (e.g. an American) for your Canadian will, you can put a clause in your will requesting (but not guaranteeing) that this bond requirement be waived.

Banking

Explore Alternative Banks

Once you have a Canadian address, depending on your specific needs, you may want to open an account at one of Canada’s alternative banks. For example, EQ Bank generally has lower fees and pays higher interest rates than the traditional banks. Others to consider may be Tangerine or PC Financial, and there are always new ones on the horizon.

Establish Canadian Credit

Your US credit won’t follow you north of the border, so you’ll want to start establishing Canadian credit after you move. Signing up for a couple of no annual fee credit cards that you’ll keep open indefinitely is a good way to start. And, of course, use autopay to ensure that you pay them off in full every month.

Healthcare

Register for Provincial Healthcare

Once you’ve established residency, you’ll want to sign up for provincial healthcare. In some provinces, there is a waiting period (e.g. 3 months) so you may need to have temporary private insurance to bridge the gap.

You’ll also want to be mindful of ongoing residency requirements to maintain your health coverage. For example, here in Nova Scotia, to be eligible for provincial health insurance we need to be present in the province for 183 or more days every calendar year. You’ll definitely want to keep this in mind, particularly if you’re going to be splitting time between the US and Canada.

Wrapping Up

This concludes my brief overview of things to consider when moving from the US to Canada. In Part 1, I covered some of the differences to be mindful of, and Part 2 reviewed actions worth considering before you move. Managing your finances as a U.S. person in Canada is an ongoing process. Staying informed and periodically reviewing your situation is key to long-term financial well-being.