U.S. citizen living in Canada: filing taxes in both countries

The United States is one of the only countries that taxes its citizens on their worldwide income no matter where they live. If you are a U.S. citizen (or U.S. green card holder) living in Canada, you generally need to file a tax return in both countries every year — even if you have not lived in the U.S. for decades and even if you owe nothing.

What you must file each year

• Canadian return (T1) — reporting your worldwide income as a Canadian resident.
• U.S. return (Form 1040) — reporting your worldwide income to the IRS, usually with Form 1116 (foreign tax credit) or the foreign earned income exclusion (Form 2555) to avoid paying tax twice on the same income.
• FBAR (FinCEN Form 114) — if the combined value of your foreign (e.g., Canadian) bank accounts exceeded US$10,000 at any time during the year.
• Form 8938 (FATCA) — if your specified foreign assets exceed the IRS thresholds, which are lower for residents of Canada than many people expect.

Canadian accounts create extra U.S. obligations

Accounts that are ordinary in Canada — TFSAs, RESPs, RRSPs, Canadian mutual funds and ETFs — are frequently problematic on the U.S. side:

• A TFSA is tax-free in Canada but the IRS does not recognize it as a retirement account. Growth inside a TFSA can be taxable in the U.S., and the underlying funds may trigger PIC reporting (Form 8621).
• An RESP can be treated as a foreign trust, requiring Form 3520/3520-A.
• Canadian mutual funds are usually PFICs (passive foreign investment companies) — punitive default tax treatment unless an election such as QEF or mark-to-market is made.
• An RRSP is the good news: under the Canada–U.S. treaty it is generally tax-deferred in the U.S. as well, but an election should be documented properly.

Avoiding double taxation

Between the foreign tax credit and the Canada–U.S. treaty, most U.S. citizens in Canada do not pay tax twice on the same income — but only when the filings are done correctly and in the right order. Credits must be computed on both returns consistently, and provincial tax, CPP contributions, and self-employment income each have their own wrinkles.

Common mistakes we correct

• Filing only the Canadian return because "the U.S. return never produced tax" — the filing obligation exists regardless.
• Missing FBAR filings for years — separate civil penalties apply.
• Ignoring TFSA and RESP reporting until a U.S. move or audit forces the issue.
• Using U.S.-only software that cannot handle Canadian reporting or treaty elections.

If this is your situation, we prepare both returns as one coordinated engagement — T1 and 1040 together, with the treaty positions, foreign reporting, and investment-account analysis built in.