Canada

For Dual Citizens and U.S. Residents with Canadian Ties

Canadian-American dual citizens and individuals who have moved from Canada to the U.S. frequently carry complex financial histories: RRSPs and TFSAs that behave differently under U.S. law, Canadian corporations and holding companies that become reportable under U.S. rules, and cross-border income that the U.S.-Canada treaty does not fully resolve. We work with clients who relocated from Canada to the U.S. and retained holdings there, dual nationals managing ongoing Canadian business interests, and individuals planning a move who want to address their Canadian positions before U.S. residency begins.

The U.S.-Canada Tax Treaty

The U.S.-Canada tax treaty is one of the most comprehensive bilateral tax treaties the U.S. has, and several of its provisions are directly relevant to U.S. residents with Canadian ties:

• The treaty explicitly covers RRSP accounts and provides for deferral of U.S. tax on accrued but undistributed RRSP income — but a treaty election must be made on Form 8833 annually to claim this treatment
• Tie-breaker rules address dual residency situations where both countries would otherwise claim a person as a tax resident
• Reduced withholding on dividends, interest, and royalties crossing the border
• Canadian CPP and OAS have favorable treatment under the treaty for U.S. residents receiving those benefits
• Savings clause: the U.S. retains the right to tax U.S. citizens on worldwide income regardless of the treaty

The treaty does not eliminate U.S. filing obligations. It adjusts how certain Canadian income and accounts are treated and helps avoid double taxation.

RRSP — Tax Deferral Under the Treaty

The Registered Retirement Savings Plan (RRSP) is a common asset for clients who worked in Canada and have since moved to the U.S. Under the U.S.-Canada treaty:

• U.S. tax on undistributed RRSP earnings can be deferred until distributions are taken — matching the Canadian treatment
• To claim this deferral, a treaty election must be made on Form 8833 annually
• Without the election, undistributed RRSP earnings are taxable on the U.S. return each year
• Distributions from an RRSP are taxable income in the U.S. when received, with treaty provisions limiting the Canadian withholding rate
• The RRSP account must still be reported on FBAR and potentially FATCA

We make the treaty election as part of the annual U.S. return when the client holds an RRSP.

TFSA — Not Tax-Deferred for U.S. Purposes

The Tax-Free Savings Account (TFSA) is one of the most common surprises for Canadians who move to the U.S. without prior U.S. tax advice:

• The TFSA has no treaty protection — unlike the RRSP, there is no treaty provision providing U.S. tax deferral
• Income and gains earned inside the TFSA are taxable on the U.S. return annually, even though they are tax-free in Canada
• A TFSA holding certain investments — mutual funds treated as passive foreign investment companies under U.S. law — may trigger Form 8621 and complex PFIC rules
• The TFSA must be reported on FBAR
• Continuing to contribute to a TFSA after becoming a U.S. person creates annual U.S. tax on what appears to be a tax-free account in Canada

We review existing TFSAs and advise on how to handle them going forward for U.S.-resident clients.

Canadian Entity Reporting

U.S. persons with ownership interests in Canadian corporations, holding companies, or partnerships have annual reporting obligations that apply from the first year of U.S. residency:

• Canadian-Controlled Private Corporations (CCPCs) — a common structure for Canadian business owners and professionals. Once the owner becomes a U.S. person, the CCPC is a controlled foreign corporation (CFC) if the U.S. person holds more than 50% of the vote or value. Annual Form 5471 is required. Subpart F income and GILTI inclusions may apply on retained earnings, eliminating the Canadian deferral benefit.
• Canadian holding companies — widely used in Canada for investment income and tax deferral. The passive income inside a Canadian holdco is often Subpart F or GILTI income from the U.S. perspective, meaning the deferral that works under Canadian law typically does not work for U.S. shareholders.
• Canadian partnerships and LPs — U.S. partners in Canadian limited partnerships or general partnerships file Form 8865. This includes professional partnerships and real estate limited partnerships common in Canadian structures.
• Branches and disregarded entities — foreign disregarded entities or branches owned by U.S. persons require Form 8858.
• Penalties for non-filing start at $10,000 per form per year. For CCPCs with significant retained earnings, the U.S. tax exposure under GILTI or Subpart F can be substantial.

Canadian Account Reporting

U.S. persons with Canadian bank accounts, RRSPs, TFSAs, and other financial accounts are subject to U.S. foreign account reporting regardless of where they live:

• FBAR (FinCEN 114): required if aggregate foreign account balances exceed $10,000 at any point during the year — applies to RRSPs, TFSAs, and bank accounts
• FATCA (Form 8938): required if total foreign financial assets exceed applicable thresholds
• Canadian financial institutions report U.S. account holders to the CRA under FATCA intergovernmental agreements, which shares data with the IRS

We prepare both forms as part of the annual compliance stack for clients with Canadian financial accounts.

Pre-Immigration Planning for Canadian Nationals

Individuals and families moving from Canada to the U.S. face a convergence of Canadian departure tax rules and U.S. entry-year planning. Addressing both sides before the move matters:

• Canadian departure tax — Canada deems a disposition of most property at fair market value on the date you cease Canadian residency. This creates Canadian capital gains that may be creditable on the U.S. return in the year of the move. Some property can be deferred by electing to post security with the CRA. RRSP accounts are not subject to deemed disposition on departure.
• Entity restructuring — Canadian corporations and holding companies become CFC-reportable from the first U.S. tax year. If significant retained earnings sit inside a CCPC, those may be taxable in the U.S. under GILTI immediately upon arrival. Distributing retained earnings, reorganizing, or liquidating entities before the move can reduce or eliminate ongoing exposure.
• RRSP and TFSA positioning — existing RRSPs carry treaty protection for U.S. purposes; TFSAs do not. Understanding which accounts to maintain, which to draw down, and how each will be taxed in the U.S. informs the pre-immigration decision.
• Asset basis documentation — establishing the fair market value of Canadian real estate, investment accounts, and business interests before arrival sets the correct U.S. cost basis going forward.
• PFIC analysis — Canadian mutual funds, segregated funds, and many ETFs held in non-registered accounts are likely PFICs under U.S. law. Liquidating these before becoming a U.S. person avoids ongoing PFIC reporting and the punitive tax treatment on distributions and gains.

Who This Is For

This page fits Canadian-American dual citizens living in the U.S., Canadian nationals who have moved to the U.S. and retained business interests, RRSPs, TFSAs, or other Canadian financial accounts, and individuals planning immigration from Canada who want to address their Canadian holdings before U.S. residency begins. It also covers those behind on Canadian entity reporting — Forms 5471, 8865, or 8858 — or on RRSP treaty elections, who need to address prior-year obligations.