Cross Border Tax | Tips for Americans Moving to Canada

Are you planning a move from the United States to Canada? Congratulations –  but along with your big move comes a web of complex tax implications that many Americans aren’t prepared for. Expert cross-border tax accountants from Madan CPA understand how overwhelming this can be. This guide highlights key tips every American moving to Canada must know to optimize their tax situation and avoid common financial pitfalls.

Understanding TFSAs: Great for Canadians, Risky for Americans

A Tax-Free Savings Account (TFSA) is one of Canada’s most popular investment vehicles. Canadian residents can contribute after-tax dollars to a TFSA, invest those funds, and withdraw both earnings and contributions tax-free.

Sounds great, right?
It is, but for Canadians.

For Americans, the story is different. The U.S. taxes its citizens on worldwide income. That means even if you live in Canada and earn tax-free growth inside a TFSA under Canadian law, the IRS still considers the TFSA fully taxable. Worse, since TFSAs are not recognized as “pension” accounts by the U.S., they don’t qualify for tax treaty protections.

Without special reporting (which can be tedious and expensive), your TFSA investments could trigger annual U.S. tax filings like Form 3520 and Form 3520-A, designed for foreign trusts — along with severe penalties if you miss filing.

Bottom Line: Americans living in Canada should avoid investing in TFSAs.

Beware of Canadian Mutual Funds and ETFs: PFIC Trap

Buying Canadian mutual funds or ETFs outside of an RRSP (Registered Retirement Savings Plan) can be a major tax trap for Americans.

Why? Because they are treated as Passive Foreign Investment Companies (PFICs) under U.S. tax law.

PFICs are subject to extremely punitive U.S. tax rules:

• High tax rates on distributions
• Complex reporting requirements (Form 8621)
• Risk of penalties if reporting is missed
• “Phantom income” — being taxed even if you didn’t sell the investment

Tip: If you want to invest in Canadian funds, only hold them inside a properly structured RRSP, which can be shielded from U.S. tax reporting thanks to the U.S.-Canada tax treaty.

Buying Your Principal Residence: Why You Should Put It in Your Canadian Spouse’s Name

Homeownership is often a big goal after moving to Canada. If you’re married to a Canadian citizen or permanent resident, it’s wise to consider putting your principal residence in your spouse’s name — and here’s why.

In Canada:

• When a Canadian resident sells their primary residence, there’s no cap on the amount of tax-free gain due to the Principal Residence Exemption (PRE).

In the U.S.:

• American citizens are subject to a $250,000 capital gain exclusion (single) or $500,000 (married filing jointly) on the sale of a primary residence.
• Gains above those amounts are taxable by the IRS.

If the home is solely in your non-U.S. spouse’s name, you can fully benefit from Canada’s unlimited PRE without triggering U.S. tax on any appreciation beyond $250,000/$500,000.

Tip: Strategically titling the property in your spouse’s name can offer significant tax savings.

Take Advantage of the Foreign Earned Income Exclusion (FEIE)

If you are earning wages in Canada, you may qualify for the Foreign Earned Income Exclusion (FEIE) under IRS rules.

In 2025, the FEIE allows you to exclude up to $126,500 (indexed annually for inflation) of foreign-earned income from U.S. taxable income.
This means you can work in Canada, pay taxes there, and legally exclude a large chunk of your Canadian earnings from U.S. taxes!

Requirements include:

• You must have a tax home in a foreign country.
• You must meet either the bona fide residence test or the physical presence test.

Tip: Filing Form 2555 with your U.S. tax return is critical to claim this exclusion.

ROTH IRA Accounts: Protect Them with a First-Year Election

If you have a ROTH IRA before moving to Canada, good news: you can preserve its tax-free status — but only if you act fast.

Under Canadian tax law, ROTH IRAs are considered foreign trusts.
Unless you file a first-year election with the CRA (Canada Revenue Agency), Canada will tax any growth inside your ROTH IRA — completely negating the tax advantages.

How to protect your ROTH IRA:

• File an election under Article XVIII(7) of the U.S.-Canada Tax Treaty when you become a Canadian resident.
• Notify the CRA properly within the required timeframe.

Tip: Filing this election ensures Canada treats your ROTH IRA like the U.S. does — tax-free both on growth and withdrawals.

Contribute to Your RRSP: A Smart Move for Dual Filers

An RRSP (Registered Retirement Savings Plan) is Canada’s equivalent of a 401(k) plan in the U.S.
It offers two major tax advantages for American expats:

1. RRSP contributions are tax-deductible from your Canadian income.
2. Income and growth inside the RRSP are tax-deferred both in Canada and the U.S.

Because RRSPs are recognized under the U.S.-Canada Tax Treaty, they avoid messy U.S. reporting requirements (unlike TFSAs or Canadian mutual funds).

Tip: Max out your RRSP contributions annually to optimize your Canadian and U.S. tax filings.

What About Your HSA (Health Savings Account)? Stop Contributing

If you had a Health Savings Account (HSA) in the U.S., you might wonder if you can continue contributing after your move to Canada.

Unfortunately, the answer is no.

Once you are no longer covered by a high-deductible health plan (HDHP), you are ineligible to contribute to your HSA under U.S. tax law.
Additionally, Canada does not recognize the HSA as a tax-free account. Earnings inside the HSA could be taxable in Canada if you’re a resident.

Tip:

• Stop contributing once you become a Canadian resident.
• However, you can continue using your existing HSA funds tax-free for qualified medical expenses.

Final Thoughts: Plan Ahead with Cross-Border Experts

Moving to Canada as a U.S. citizen involves much more than updating your address — it reshapes your entire financial and tax landscape.
Proactive planning can help you avoid costly mistakes, double taxation, and unnecessary penalties.

At Madan CPA, we specialize in cross-border tax strategies to help Americans living in Canada navigate these challenges with confidence.

• Tax Planning
• Cross-Border Filings
• Investment Optimization
• Retirement Account Structuring

Ready to move smartly and minimize your cross-border tax burden?

Contact Madan CPA today for personalized tax advice tailored to your unique situation!
Book Your Consultation Now

FAQs

Q1. Should I close my TFSA if I already opened one before moving to Canada?
A1. Not necessarily — but you must report it annually to the IRS and file special forms. Many choose to withdraw the funds to avoid complex reporting.

Q2. Can I contribute to a U.S. 401(k) while living in Canada?
A2. Only if you are still employed by a U.S. employer offering a 401(k). Otherwise, new contributions typically stop.

Q3. Are Canadian pensions taxable in the U.S.?
A3. Yes. CPP (Canada Pension Plan) and OAS (Old Age Security) benefits are taxable by the U.S., although you can use foreign tax credits to offset double taxation.

Q4. Do I need to file U.S. taxes while living in Canada?
A4. Yes. U.S. citizens must file annual U.S. tax returns regardless of where they live, reporting global income.

Q5. Can I hold Canadian bank accounts as a U.S. citizen?
A5. Absolutely, but you must report them annually using FBAR (FinCEN 114) and possibly FATCA Form 8938 if thresholds are met.