Things to Know About Canada/U.S. Cross Border Taxation

If you’re a Canadian with ties to the United States, whether through work, investments, property, or family, your taxes don’t stop at the border. Understanding how cross-border taxation works is crucial to protecting your money and staying on the right side of both tax authorities.

At Madan Chartered Accountant, we help people and business owners make sense of the complicated tax rules between Canada and the U.S., so income gets reported correctly, credits get claimed, and you don’t end up paying tax twice on the same dollar.

Why It’s So Complicated?

Canada and the U.S. may be close neighbours, but their tax systems work completely differently.

Canada taxes based on where you live. If you’re a resident here, you pay tax on everything you earn worldwide. The U.S., though, taxes based on both where you live and citizenship. So even if you’re an American who moved to Canada years ago, you still have to file a U.S. tax return every year and report all your income to the IRS.

This overlap is where things get messy. Lots of people don’t realize they have to file in both countries. These include snowbirds spending winters down south, dual citizens, and Canadians working remotely for U.S. companies.

The Canada–U.S. Income Tax Treaty exists to prevent double taxation, but using it correctly takes careful planning and professional help.

“The biggest mistake we see is people assuming they only owe tax where they live,” says Allan Madan, CPA, CA, founder of Madan Chartered Accountant.
“”In reality, cross-border income and residency rules are way more connected than people think. If you don’t coordinate your filings, you can easily overpay.”

First step: Figuring Out Where You’re a Resident

Your residency status determines where you pay tax, but it’s not always clear-cut. The CRA and IRS each have their own tests, and sometimes you can meet both definitions at once. When that happens, the treaty has tie-breaker rules that look at where your permanent home is, where your family and finances are centered, and where you spend most of your time.

For snowbirds, temporary workers, or remote professionals, even a few extra weeks in the U.S. can create residency issues. Figuring out your primary tax residence early and documenting it helps you avoid double-filing headaches and ensures you get the treaty benefits you’re entitled to.

How does Earning Income Across the Border work?

Cross-border income comes in many forms: employment, consulting, freelance work, and investments. Generally, income gets taxed where you do the work. But there are exceptions for short assignments or lower-income situations under the treaty. If you’re self-employed, it gets trickier. If your business has a “permanent establishment” in the U.S., like an office, warehouse, or agent, the IRS might tax you even if you live in Canada.

To avoid double taxation, both countries offer foreign tax credits. These let you offset tax paid in one country against what you owe in the other. But timing and documentation matter, so make sure you’re set up to claim the full credit.

Investments and Registered Accounts

Investing across borders needs extra care. Canadians holding U.S. stocks usually face a 15% withholding tax on dividends, while capital gains are generally only taxed in Canada (unless tied to U.S. real estate).

Registered accounts add another layer. The IRS recognizes RRSPs and RRIFs as tax-deferred, but not TFSAs or RESPs, meaning the growth in those accounts might be taxable if you’re a U.S. citizen living in Canada. U.S. citizens in Canada may also have to report Canadian mutual funds as Passive Foreign Investment Companies (PFICs), which can lead to serious penalties if overlooked.

“Cross-border investment taxation is one of the most misunderstood areas,” Allan Madan explains. “”It’s not about dodging taxes, it’s about structuring things right so you don’t pay more than you should.”

What happens when you own U.S. Property?

A lot of Canadians buy property in the U.S. for vacations or rental income, but the tax side often catches them off guard. Rental income from U.S. real estate has to be reported to the IRS. When you sell, there’s a 15% withholding tax under FIRPTA, though you can get some of that back through a U.S. tax return.

More importantly, watch out for the U.S. estate tax. If a Canadian dies owning more than USD 60,000 in U.S. assets, property, shares of U.S. companies, the estate may need to file a U.S. estate tax return, even if no tax is owed. The treaty usually eliminates the estate tax for Canadians through a pro-rata credit, but you have to file the right forms to get that protection.

What if you are growing a business across borders?

Expanding into the U.S. brings its own complications. How you structure your business, corporation, branch, or LLC can drastically change how profits are taxed. U.S. LLCs are popular, but they’re treated as pass-through entities by the IRS and as corporations by the CRA. That mismatch often creates double taxation unless you restructure.

At Madan Chartered Accountant, we help business owners model their tax exposure before they incorporate, making sure payroll, social security, and income taxes are handled correctly in both countries. A little planning up front can save thousands down the road.

Let’s go through the planning.

Retiring across borders takes careful planning, not just for your income streams, but for what happens to your estate down the road.

Pensions, annuities, and investment withdrawals may be taxed by both the CRA and IRS, depending on where you live and what treaty elections you make. RRSP withdrawals are taxable in Canada but might also face U.S. withholding if you’re American. Conversely, 401(k) or IRA income for Canadians is taxable in the U.S., though you can claim a foreign tax credit in Canada. The treaty gives you flexibility on where certain income gets taxed, but you need to file the right elections and review your situation annually to stay compliant and minimize tax leakage.

Estate planning adds another layer. Canada doesn’t have an inheritance tax, but there’s a deemed disposition at death, meaning most assets are treated as if they were sold at fair market value, triggering capital gains tax. If you have U.S. holdings, U.S. estate tax might also apply. Right now, the exemption is around USD 13.99 million (2025), but that’s set to drop after 2026 unless Congress extends it.

Smart cross-border estate planning covers both legal and tax angles: ownership structures, trusts, wills that work in both countries, and beneficiary planning to reduce exposure and simplify administration for your family.

The most expensive mistakes in cross-border taxation usually aren’t about unpaid taxes, they’re about missed filings. U.S. citizens and green card holders must file FBAR and FATCA reports to disclose foreign accounts. Canadians earning U.S. income need to file Form 1040NR or provide Form W-8BEN for proper withholding. Dual citizens have to coordinate filings to claim foreign tax credits and treaty benefits correctly.

At Madan Chartered Accountant, we make sure your filings line up across both systems, so you get maximum credits, avoid penalties, and keep your compliance record clean, from retirement through to estate settlement.

Get Expert Help with Canada/U.S. Cross-Border Taxation

If you have income, investments, or property in the U.S., it’s worth reviewing your situation before tax season hits. Our team at Madan Chartered Accountant specializes in cross-border tax planning for individuals, families, and businesses.

We help clients:

• Determine tax residency and treaty eligibility
• Coordinate CRA and IRS filings
• Optimize foreign tax credits and deductions
• Plan for retirement or estate transitions
• Structure businesses for cross-border growth

Book a consultation today to make sure your cross-border finances are set up efficiently and your tax exposure is minimized on both sides of the border.