Canada vs. U.S. Taxes: What Changes When You Move?

One of the most important changes when you move is how residency is determined.

Canada taxes individuals based on residency, which is assessed using factual residential ties such as housing, family, and economic connections. Once you are considered a Canadian tax resident, Canada generally taxes your worldwide income, regardless of where it is earned.

The United States, on the other hand, taxes based on citizenship and residency. U.S. citizens remain subject to U.S. tax filing obligations no matter where they live. This fundamental difference is the root of many cross-border tax complexities.

In Canada, worldwide income reporting begins once residency is established and ends when residency ceases. In the U.S., worldwide income reporting continues indefinitely for citizens, even after moving abroad.

For individuals moving from the U.S. to Canada, this often means filing:

• A full Canadian resident tax return
  
  

• A U.S. tax return as a citizen living abroad
  
  

While tax treaties help prevent double taxation, they do not eliminate the need to file in both countries. Instead, relief is usually provided through foreign tax credits or exclusions.

Canada and the U.S. both use progressive tax systems, but the rate structures and thresholds differ materially.

Canada’s system relies heavily on federal and provincial income taxes, with combined marginal rates that can be higher than many U.S. federal-state combinations. The U.S. system includes federal tax, state tax (where applicable), and additional taxes such as net investment income tax.

As a result, individuals may find that:

• Employment income is taxed more heavily in Canada
  
  

• Investment income can be taxed differently depending on structure
  
  

• Timing of income recognition becomes more important
  
  

Understanding these differences is critical when planning compensation, bonuses, or investment withdrawals around a move.

One of the most misunderstood areas of Canada–U.S. taxation involves retirement accounts.

Canadian plans such as RRSPs and RRIFs do not function the same way as U.S. plans like 401(k)s and IRAs. While tax treaties provide some coordination, the rules are not symmetrical.

Similarly, Canadian accounts like TFSAs are not recognized as tax-free by the U.S., creating unexpected reporting and tax exposure for U.S. citizens living in Canada.

When moving between the two countries, retirement planning almost always needs to be revisited.

Canada imposes a departure tax when individuals cease to be tax residents, effectively taxing unrealized gains on certain assets. The U.S. has its own exit tax regime for certain long-term residents and citizens.

These rules can trigger tax even when no assets are sold, making timing and valuation critical. Many individuals only discover these issues after they have already moved, when planning options are limited.

After a move, certain income streams may become subject to withholding tax rather than annual taxation.

For example:

• RRSP or RRIF withdrawals paid to non-residents are subject to Canadian withholding

• U.S. investment income paid to non-residents may be subject to U.S. withholding
  
  

In some cases, withholding tax is final. In others, filing an election or return can reduce the tax. Knowing which income falls into which category makes a significant difference.

The Canada–U.S. tax treaty is designed to prevent double taxation and clarify taxing rights. However, it does not make cross-border taxes simple.

Treaties require interpretation, coordination, and proper reporting. In many cases, the treaty determines which country taxes first, not whether tax applies at all.

Assuming the treaty “fixes everything” is one of the most common- and costly- mistakes made by individuals moving between Canada and the U.S.

Moving often increases, not decreases compliance obligations.

Cross-border individuals may face:

• Dual tax returns

• Foreign asset reporting in both countries

• Additional disclosure forms for bank accounts and investments
  
  

Even individuals with relatively simple financial lives can find compliance burdensome once two tax systems apply.

Moving between Canada and the United States changes far more than your address. It fundamentally alters how income is taxed, reported, and planned for.

The biggest risks are not usually higher taxes- they are misunderstandings, missed filings, and poor coordination. With proper planning, many of these issues can be managed effectively. Without it, small mistakes can compound quickly.

Understanding what changes, and planning before or immediately after a move, allows individuals to transition smoothly and avoid unnecessary tax exposure.

When you move from the U.S. to Canada, you may become a Canadian tax resident, which means Canada generally taxes your worldwide income. U.S. citizens must still file U.S. tax returns, resulting in dual filing obligations that require careful coordination. 

Both countries tax worldwide income, but they do so based on different principles. Canada taxes based on residency, while the U.S. taxes based on citizenship and residency. This difference is a major source of cross-border tax complexity. 

Yes. U.S. citizens living in Canada generally must file both a Canadian tax return and a U.S. tax return each year. Tax treaties and credits help prevent double taxation but do not eliminate filing requirements.

It depends on income type and location. Canada often has higher combined federal and provincial rates on employment income, while the U.S. may impose additional taxes on investment income. Comparing marginal rates alone does not always reflect the full tax picture. 

Canadian and U.S. retirement accounts are not interchangeable. RRSPs and 401(k)s are treated differently under each tax system, and accounts like TFSAs are not recognized as tax-free by the U.S. Proper planning is essential when moving across the border. 

The tax treaty helps prevent double taxation, but it does not eliminate it automatically. Relief usually comes through foreign tax credits, exclusions, or treaty elections, all of which require proper reporting. 

Canada may impose a departure tax when individuals cease to be residents, taxing unrealized gains on certain assets. The U.S. has its own exit tax rules for certain long-term residents and citizens. These rules can apply even if no assets are sold. 

In most cases, no. Moving between Canada and the U.S. often increases compliance obligations, including dual tax returns and foreign asset reporting in both countries. 

Common mistakes include misunderstanding residency status, assuming tax treaties eliminate filing requirements, mishandling retirement accounts, and failing to coordinate foreign tax credits properly.