Moving to the US from Canada? Know the Tax Issues

By Michael Niren December 6, 2011 (Updated December 9, 2019) 3 min. read

Below is a blog written by my colleague south of the border,Renea Glendinning, CPA of  Kerkering, Barberio & Co.  in Sarasota Florida. It is a great summary of the tax issues facing Canadians wishing to move to the US. Beyond just US immigration issues which are discussed extensively in our blogs, people wishing to immigrate must be aware of the complex tax issues involved. I hope you enjoy Renea’s blog!

Tax information for Canadians Moving to the U.S.

Each year, many Canadians relocate their place of residence by immigrating to the U.S.  By doing so, they become subject to the U.S. tax laws with respect to taxation of income applicable to tax residents.  It is important that these new immigrants understand the obligations associated with U.S. income tax reporting and disclosure requirements.

U.S. tax residents are required to report worldwide income on their U.S. income tax return, Form 1040.  This includes income from the U.S., Canada and any other country in the world.  This can result in the same income being subject to taxation in more than one country.  For example, a former Canadian tax resident will be subject to Canadian income tax withholding on distributions from his RRSP or RRIF.  These distributions would also be subject to U.S. income taxation.  However, the U.S. would allow a tax credit for tax paid in Canada on this income.  If the tax paid in Canada exceeds the U.S. tax applicable to this income, no additional U.S. tax would be payable.  Even though the income is reportable in both countries, it does not result in double taxation.

Tax Benefits for Canadians Moving to the U.S.

There are also potential benefits that are available under the income tax treaty between the U.S. and Canada.  When an individual departs Canada, he is treated as having disposed of many of his assets as of the date of his departure.  Canadian income tax is paid on the gain from the deemed disposition.  If the individual makes the proper election, he will be treated for U.S. income tax purposes as though he sold and repurchased the assets at fair market value on the date of departure.  For U.S. income tax purposes, the tax basis of these assets becomes the fair market value as of the date of departure from Canada.  Absent this election, the individual would be subject to double taxation on the subsequent sale of these assets.  There are also benefits provided under the treaty with respect to the taxation of Old Age Security, Canada Pension Plan and Quebec Pension Plan payments.

What Canadians Have to Disclose When Moving to the U.S.

In addition, there are disclosures that may need to be filed with the Internal Revenue Service.  Some disclosures are associated with the reporting of income and others are simply for informational purposes.  Some disclosures are filed with the Form 1040, while others are submitted separately.  Failure to make full and adequate disclosure may result in the imposition of substantial penalties.  The most common of these disclosures includes:

Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)

Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans

 Form 8938, Statement of Specified Foreign Financial Assets

 Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations

Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships

Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner

Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts

An Individual who immigrates from Canada to the U.S. needs to be cognizant of the U.S. income tax reporting and disclosure requirements that are applicable to his particular situation.  He should never assume that the tax laws of Canada and the U.S. are the same, as they certainly are not.  It is important that the individual obtain tax advice from a professional who is knowledgeable with respect to these specific issues.  Knowledge and proper planning will facilitate a smooth transition from the tax system of Canada to the tax system of the U.S.

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Lisanne Cholette

Mansi has been helping me navigate through a new chapter in my life. It has been a huge comfort to be able to lean on her knowledge and expertise and I would highly recommend her to anyone!

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BERLITA COLLADO

I am so very thankful to the VISAPACE team for making it all come true and possible from my Open Work Permit to my Permanent Residence, you make it all happen .Thank you very much from the bottom of my heart , Thank you for being part of my achievements. Now I am now a Permanent Residence through the effort, power and knowledge of VISAPLACE LEGAL TEAM.
Sending you my best appreciation and thank you.

Berlie Collado

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Shahrzad Sh

“I truly want to thank Mansi. Her patience and thoughtful advices made a big difference for me. Her recommendations were not only helpful but also gave me clearer insight. Words can’t fully express how grateful I am for her support.”

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kevin geoffrey

Visa place helped me with my daughter’s sponsorship 3 years ago. Last week I contacted them for some clarification on a different matter. It was about an issue which technically was a problem of CIC’s software glitch and had nothing to do with Visa Place.
Yet Reena Sandu was assigned for my case. she helped me with enthusiasm and showed no hesitation despite me being an ex-client from 3 years ago.
I was very happy that even after 3 years of finishing business, Visa Place were respectful of their clients. Special thanks again to Reena for her enthusiasm and support.

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Nessie Leigh Ilarde

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parker ellis

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Domenico Orsi

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