If you’re a Canadian living and working in the U.S. or an American residing in Canada then you already know that living a cross-border lifestyle forces you to stay up to date on all sorts of rules and procedures; from immigration and visa rules to insurance coverage and access, or even driver’s licence and vehicle registration, not to mention the elephant in the room: Taxes.
The Canadian government provides general guidance on Canadian tax obligations for those living or working abroad, but when it comes to cross-border tax planning, a personalized approach is key. Here’s what you need to know to stay compliant, maximize tax savings, and avoid costly mistakes.
1. Where You “Live” for Tax Purposes Matters
Tax residency is a complicated and oftentimes confusing concept.
Canada considers you a Canadian resident for tax purposes if you have strong ties to Canada, such as a home, family, or bank accounts. This is based on Canadian domestic laws on residency. You can also be considered a deemed resident of Canada, under domestic law, if you spend more than 183-days in Canada.
If you are not a U.S. citizen, the U.S. tax system uses what is called the “substantial presence test” to determine if you meet the definition of a U.S. tax resident; The test explores the number of days spent in the U.S. over a three-year period. If you meet the test, you are considered a U.S. tax resident—even if you don’t hold a Green Card or U.S. citizenship. Fortunately the Treaty between the two countries overrides the domestic laws and can help taxpayers cement their desired tax residency position.
Why does this matter? Because tax residency determines where you need to file tax returns, pay income tax, and comply with filing requirements. Many people assume that once they leave Canada, they no longer owe Canadian taxes—but that’s not always the case.
2. Leaving Canada? Watch Out for the Canadian Departure Tax
If you officially become a non-resident of Canada for tax purposes, you may have to pay Canadian departure tax. Essentially, the Canadian government treats some of your assets (like stocks or investments) as if you sold them on the day you left, triggering capital gains tax—even if you haven’t actually sold anything.
Not everything is subject to departure tax. RRSPs and other Canadian pension plans such as LIRAs as well as Canadian real estate tax-deferred. Rental properties in Canada are not taxed upon departure, but you will have future tax obligations related to the rental income and eventual disposition of the property .
3. You Might Need to File Tax Returns in Both Countries
If you are a U.S. citizen living in Canada, you’ll need to file tax returns in both places.
Canadians working in the U.S., such as cross border commuters, may need to file a U.S. tax return to declare their employment income while still reporting worldwide income to Canada if they remain a Canadian tax resident.
How to Avoid Double Taxation
No one wants to pay income tax twice on the same earnings. Fortunately, the Canada/U.S. tax treaty helps prevent double taxation in a few ways.
Foreign tax credits allow you to offset taxes paid in one country with credits on your return in the other, reducing your total tax liability.
Tax exemptions may apply to certain types of income, such as U.S. Social Security or Canadian pension payments, which could be taxed at a reduced rate or only in one country.
5. U.S. Citizens in Canada: Beware of Foreign Asset Reporting
If you’re a U.S. citizen or Green Card holder living in Canada, you have additional tax reporting obligations beyond just filing a U.S. federal tax return.
FBAR (Foreign Bank Account Report) is required if you have more than $10,000 USD across all non-U.S. accounts, including Canadian bank accounts, which must be reported to the U.S. Treasury.
FATCA (Foreign Account Tax Compliance Act) requires U.S. persons to disclose certain foreign financial assets to the IRS.
6. Owning Property in Canada While Living in the U.S.? Know the Tax Rules
If you own Canadian property while living in the U.S., be aware of the tax implications.
Rental income from a Canadian property must be reported to the Canada Revenue Agency (CRA). You may also need to file a Section 216 return, which can lower your tax burden.
Selling Canadian property as a non-resident means the CRA will withhold 25% – or more if the property is located in Quebec- of the sale price until you file a tax return and report any capital gains. If you don’t plan ahead, this could create cash flow issues.
A Little Tax Planning Goes a Long Way
Cross-border tax planning isn’t just about filing tax returns—it’s about making smart financial decisions that reduce your overall tax liability and maximize your tax savings.
Maximizing tax-efficient accounts, such as RRSPs and IRAs, can help minimize taxable income.
Need Help with Cross-Border Tax Planning?
Managing taxes across two countries is anything but straightforward. Canadian tax laws and those south of the 49th parallel don’t always align, and what works in one country can create unexpected tax bills in the other. Without a solid plan, you might end up overpaying, missing out on key tax savings, or facing penalties for improper filings.
Maybe you’ve moved to the U.S. for work and aren’t sure if you still have Canadian tax obligations. Maybe you’re an American living in Canada, juggling filing requirements for both the IRS and CRA. Or maybe you split your time between both countries and want to make sure you’re not triggering unintended tax residency. Whatever your situation, our goal is simple: to help you avoid costly mistakes and make tax-smart financial decisions.
Taxes aren’t just about filing returns—they’re an essential part of your bigger financial picture. When you take us on as your cross-border financial planning firm, you get the peace of mind that comes with knowing that every financial move will be strategic, tax-efficient, and aligned with your long-term goals. Contact us today.