Planning a move from Canada to the United States is exciting—but the tax and planning details can get complicated fast. In this blog post, cross-border advisor Karen Rogers Sim of Cardinal Point Wealth Management explains how to prepare before you depart Canada so you can avoid double taxation and costly surprises. You’ll learn how residency is determined on both sides of the border, how the Canada–U.S. Income Tax Treaty and substantial presence rules interact, and why the date you become a U.S. tax resident matters. Karen outlines Canada’s departure tax (deemed disposition), potential step-ups in U.S. cost basis, and what assets are excluded. She also covers how to position RRSPs, TFSAs, and non-registered accounts, highlights key state-level differences (for example, some states don’t recognize treaty treatment), and explores decisions around selling or renting Canadian real estate and using pre-immigration gifting.
With a team credentialed in both countries—and Karen’s firsthand experience moving her own family—Cardinal Point provides a practical roadmap to coordinate taxes, investments, estate planning, and compliance so you can settle confidently.
If you’re a Canadian (not a U.S. citizen or green card holder) preparing to relocate, this post is for you. Watch the video now to get organized and start your cross-border plan.
Transcript
Are you a Canadian planning to move to the United States? Whether for work, retirement, or a fresh start, this exciting new chapter comes with some unique financial challenges. If you are already a U.S. citizen or green card holder, this video is not for you. We have other blogs on our website that cover an American moving from Canada back to the U.S.
Cross-border tax planning before you depart Canada ensures a smooth transition and avoids unnecessary tax burdens and other unintended consequences. In this video, we’ll explore what cross-border tax planning is and how it can help you manage your finances effectively. It can be complicated! At Cardinal Point Wealth Management, we’re here to guide you through every step of this process, making your transition as seamless and painless as possible. The team at Cardinal Point has deep expertise in this type of planning. Many of our team have professional credentials in both countries and work back and forth across the border.
Cross-border tax planning involves organizing your financial affairs to leverage the tax treatments in both Canada and the United States. It’s about more than just filing your taxes; it’s about strategically managing your income, investments, and assets to minimize tax liabilities and avoid double taxation.
The Canadian and U.S. tax systems are quite different and your accounts set up on one side of the border are not necessarily treated the same on the other side of the border. The Canada – U.S. Income Tax Treaty does resolve many conflicts to eliminate double-taxation but you still need to position your assets and time your departure to keep from being taxed in the U.S. on gains already taxed by Canada.
One of the first steps in cross-border tax planning is determining your residency status for tax purposes in both countries. Your residency status will affect how and where you are taxed.
The concept of residence is determined by common law principles and is a facts and circumstances test. Factors such as habitual abode, social and economic ties are all a part of the mix. In the U.S. there is also a codification in the income tax regulations that further determines your residency status by substantial presence tests and whether or not you have taken affirmative action to become a permanent resident.
Canadian residents are taxed on their worldwide income by Canada. Once you cease to be a Canadian tax resident, Canada only taxes your Canadian sourced income. For items such as Canadian employment or business income and the rental or sale of Canadian real estate, Canada gets the first right of taxation even when you are no longer a tax resident. On other Canadian sourced income there may be non-resident withholding taxes, but these will be at reduced rates, thanks to the Canada-U.S. Income Tax Treaty.
U.S. citizens and residents are also taxed on their worldwide income. U.S. citizens and green card holders are taxed on worldwide income even if when they don’t actually live in the U.S. Non-citizen residents are subject to U.S. taxation on their worldwide income only from the beginning of their U.S. residence.
If you could be considered to be a resident of both Canada and the United States, you then go to the tie-breaker rules in the Canada – U.S. Income Tax Treaty. The date you become a U.S. tax resident instead of a Canadian tax resident matters for a number of reasons. First, the taxation of worldwide income switches to the U.S. Second, you have departed Canada and have a deemed disposition of your assets. This is called the Canadian departure tax. Lastly, the value of many of your assets can be stepped up to fair market value for U.S. tax purposes on your departure from Canada.
Planning for your Canadian exit tax return should not be left until the last minute. On this return you declare your assets, their value and the unrealized gains on your holdings. You recognize the income from the deemed disposition and pay tax on it. Certain items, such as cash, personal items and Canadian real property are excluded from the deemed disposition.
It’s important to look at your Canadian tax balances carried forward to make sure that you make the best use of net capital losses, RRSP and TFSA contribution room and any lifetime qualified small business capital gains exemptions that are available to you. You will also need to look at the holdings in your registered plan to see what the effect of an exit might be. Once you have departed Canadian tax residency, it is too late to take corrective action.
There are Treaty Articles that allow for a step up of the basis of your Canadian home and that permit a deemed disposition of assets on the U.S. side to mirror the deemed disposition on your Canadian exit return. Not all of this will be advantageous to you. That’s when having an experienced cross-border tax planner like the team at Cardinal Point is valuable. Plan ahead and start early. Some thought should also be given to pre-emigration gifting .
Effective cross-border tax planning goes beyond just avoiding double taxation—it’s about optimizing your overall tax situation. For example, you’ll need to consider how your Canadian investments, retirement accounts, and other assets will be taxed in the U.S. What is the tax environment in the U.S. state where you are settling? How and where will your estate be taxed?
If you have Canadian retirement accounts, such as RRSPs, understanding how these accounts will be treated under U.S. tax law is crucial. Registered plans continue to receive deferred income status in the U.S. for federal purposes and in most, but not all U.S. states. States like California do not recognize the Income Tax Treaty with Canada. Depending on your situation and the amount of unrealized gains in the registered plan, taking certain actions, such as withdrawing funds before you move, resetting the basis by strategic sells and buys inside the plan, or converting accounts to avoid potential tax penalties, might make sense for you. To properly plan your transition, you also have to decide what will happen with any Canadian real property left behind. Will it be rented? Will you sell it? What happens with your principal residence exemption? We have a separate video on this subject. We provide personalized strategies to optimize your tax outcomes, helping you easily navigate these complex decisions.
Given the complexities of managing taxes across borders, working with a cross-border financial advisor is essential. We have the expertise to guide you through the intricate web of tax regulations and help you develop a personalized tax strategy. My husband and I moved to the States from Canada several years ago. I have first-hand experience navigating the immigration process, dealing with buying and financing a home, looking after insurance, healthcare, schools for the kids, and the cross-border income taxes. It’s a lot!
We can assist with everything from strategies for tax optimization in both countries, managing your investments, and planning your estate. Our goal is to help you avoid costly mistakes and ensure you’re compliant with tax laws in both Canada and the U.S. At Cardinal Point Wealth Management, we offer specialized cross-border tax planning, giving you peace of mind that your financial affairs are in the right hands as you make your move to the United States.
Cross-border tax planning is essential to making your move to the U.S. as smooth and financially secure as possible. With the right strategy in place, you can optimize your tax situation, protect your wealth, and focus on enjoying your new life in the United States.