U.S. Expat Tax Guide for Living in Canada

For Americans living in Canada, there’s good news: despite Canada’s higher tax rates, most U.S. expats owe $0 in U.S. taxes when filing correctly. According to Statistics Canada data, over 1 million Americans call Canada home, making it one of the largest U.S. expat communities worldwide. Here’s what you need to know about filing taxes in both countries without the stress.

The key to peace of mind is proper planning and filing. While you’ll pay Canadian taxes on your worldwide income as a Canadian resident, the U.S.-Canada tax treaty, combined with the Foreign Tax Credit and Foreign Earned Income Exclusion, typically eliminates any U.S. tax liability. The challenge isn’t paying double taxes—it’s filing correctly in both countries.

Why Do I Have to File Taxes in Both Countries?

As a U.S. citizen, you’re required to file U.S. taxes regardless of where you live. The United States is one of only two countries in the world that taxes based on citizenship rather than residence. At the same time, if you’re a Canadian tax resident, you must file Canadian taxes on your worldwide income.

Here’s how it works:

You file a Canadian T1 return for your Canadian taxes, reporting all income and paying Canadian federal and provincial taxes. Then you file your U.S. Form 1040, also reporting worldwide income, but applying exclusions and credits that typically reduce your U.S. tax bill to $0.

The U.S.-Canada tax treaty prevents true double taxation by coordinating between the two systems. Most Americans in Canada end up owing nothing to the IRS thanks to these protections.

Take Note

Don’t skip your U.S. filing just because you owe $0. Failing to file can result in penalties starting at $135 per form, even if no tax is due.

Live in Canada and Unsure If You’re Filing the Right Way?

Cross-border taxes get complicated fast. Our team prepares your US return while our Canadian partners handle your T1, ensuring both sides match and you avoid double taxation.

Am I a Canadian Tax Resident?

Canadian tax residency determines whether you file taxes on your worldwide income or just Canadian-source income. Canada uses a facts-and-circumstances test focusing on your residential ties.

You’re generally a Canadian tax resident if you:

Have a permanent home in Canada available to you
Have a spouse or common-law partner in Canada
Have dependents in Canada
Spend 183 days or more in Canada during the tax year

Secondary factors include:

Personal property in Canada (car, furniture, clothing)
Social and economic ties (driver’s license, bank accounts, memberships)
Canadian health insurance coverage

Example: Maria’s First Year

Maria, a software developer, moved from Seattle to Toronto on September 1, 2025. Under Canadian tax law, she’s considered a part-year resident. For her 2025 Canadian return, she’ll report only her income earned from September through December. For her U.S. return, she reports her full year’s income, but can start claiming expat benefits once she establishes Canadian residency.

For more details on planning your move, check out our comprehensive guide to moving to Canada.

How Do Canada and U.S. Tax Systems Compare?

Understanding the differences helps you plan more effectively and avoid surprises.

Tax Category	Canada	United States
Federal Income Tax	15% to 33%	10% to 37%
Provincial/State Tax	5% to 21% (varies by province)	0% to 13.3% (varies by state)
Combined Tax Rates	20% to 54%	10% to 50.3%
Healthcare	Universal healthcare included in taxes	Not included; separate insurance required
Sales Tax (GST/HST)	5% to 15% (federal + provincial)	0% to 10.75% (state only, no federal)
Social Security	CPP: 5.95% (max C$4,076)<br>EI: 1.63% (max C$1,030)	FICA: 7.65% (6.2% SS + 1.45% Medicare)<br>No cap on Medicare
Tax Year	January 1 – December 31	January 1 – December 31
Filing Deadline	April 30 (June 15 for self-employed)	April 15 (June 15 automatic for expats)
Property Tax	0.5% to 2.5% of assessed value<br>(Not income-deductible)	0.3% to 3.0% of assessed value<br>(Deductible up to $10,000)

Key Difference for Expats: While Canadian rates appear higher, the higher taxes you pay to Canada typically eliminate your U.S. tax liability through the Foreign Tax Credit. Most Americans in Canada owe $0 to the IRS.

For a detailed comparison, read our Canada vs. U.S. Taxes guide.

What Canadian Taxes Will I Pay?

Canadian residents are subject to several types of taxes. Here’s what to expect:

Income Tax (Federal and Provincial)

Federal tax rates for 2025 (filed in 2026):

15% on income up to C$57,375
20.5% on income from C$57,376 to C$114,750
26% on income from C$114,751 to C$177,882
29% on income from C$177,883 to C$253,414
33% on income over C$253,414

Provincial rates vary widely:

Ontario: 5.05% to 13.16%
British Columbia: 5.06% to 20.5%
Alberta: 10% to 15%
Quebec: 14% to 25.75%

Example: David’s Toronto Tax Bill

David earns C$120,000 working in Toronto:

Federal tax: C$20,429
Ontario provincial tax: C$8,696
Total income tax: C$29,125 (24.3% effective rate)

When David files his U.S. return, he’ll report US$88,000 (converted at the current exchange rate) and use the Foreign Tax Credit for the C$29,125 he paid to Canada, thereby eliminating his U.S. tax liability entirely.

Canada Pension Plan (CPP) and Employment Insurance (EI)

If you’re employed in Canada, you’ll pay:

CPP: 5.95% of pensionable earnings (up to C$68,500 in 2025)
Maximum CPP: C$4,076 annually
EI: 1.63% of insurable earnings (up to C$63,200 in 2025)
Maximum EI: C$1,030 annually

The U.S.-Canada Totalization Agreement prevents you from paying social security taxes to both countries. If you’re paying CPP, you don’t pay U.S. Social Security tax on the same income.

Example: Tom’s Self-Employment Savings

Tom, a freelance consultant in Calgary, earns C$90,000 annually. He pays Canadian CPP contributions of C$4,076. Without the Totalization Agreement, he’d also owe roughly $13,500 in U.S. self-employment tax. The agreement saves him thousands by eliminating the U.S. obligation.

Goods and Services Tax (GST) / Harmonized Sales Tax (HST)

Canada’s consumption taxes vary by province:

Federal GST: 5% (Alberta, territories)
HST (combined federal + provincial): 13-15% (Ontario, Atlantic provinces)
GST + PST: 12-15% (BC, Saskatchewan, Manitoba, Quebec)

How Do I Avoid Double Taxation?

Three main protections work together to eliminate double taxation:

Foreign Earned Income Exclusion (FEIE)

The FEIE allows you to exclude up to $130,000 (2025 tax year, filed in 2026) of Canadian employment income from U.S. taxation.

To qualify, you must meet either:

Physical Presence Test: Present in foreign countries for at least 330 full days during any 12-month period
Bona Fide Residence Test: Genuine resident of Canada for an entire tax year

Example: Sarah’s FEIE Strategy

Sarah earns C$85,000 (US$63,000) working as a teacher in Montreal. She meets the Physical Presence Test by spending 345 days outside the U.S. in 2025. Using the FEIE on Form 2555, she excludes her entire salary from U.S. taxation, owing $0 to the IRS.

Foreign Tax Credit (FTC)

The Foreign Tax Credit provides a dollar-for-dollar credit for Canadian taxes paid against your U.S. tax liability.

Why it’s powerful: Canadian tax rates are generally higher than U.S. rates, so the FTC often eliminates your entire U.S. tax bill and may even create excess credits you can carry forward.

Example: James’s Foreign Tax Credit

James, a senior manager in Vancouver, earns C$180,000 (US$133,000):

Canadian taxes paid: C$64,500 (US$47,600)
U.S. tax before credits: $30,000
After Foreign Tax Credit: $0 (with $17,600 in excess credits carried forward)

U.S.-Canada Tax Treaty

The tax treaty coordinates taxation between both countries and provides specific benefits:

Prevents double taxation on pension income
Coordinates social security taxation (Totalization Agreement)
Provides special treatment for certain Canadian retirement accounts

Best Strategy: Most Americans in Canada benefit the most from the Foreign Tax Credit because Canadian taxes are typically higher, often providing complete elimination, as well as carry-forward benefits.

How Are Canadian Retirement Accounts Treated for U.S. Taxes?

Canadian retirement accounts receive special treatment under U.S. tax law; however, the rules vary significantly by account type.

Registered Retirement Savings Plans (RRSPs) and RRIFs

Good news: Since 2014, RRSPs have received automatic tax-deferral treatment under the U.S.-Canada tax treaty. You no longer file Form 8891.

How it works:

The U.S. does not tax RRSP growth until withdrawal
When you withdraw, report the income on your U.S. return
Use the Foreign Tax Credit for Canadian withholding tax paid
Result: Typically $0 additional U.S. tax

Example: Lisa’s RRSP Withdrawal

Lisa withdraws C$80,000 from her RRSP as a non-resident. Canada withholds 25% (C$20,000). On her U.S. return:

Reports US$59,000 as pension income
U.S. tax on this amount: $12,000
Foreign Tax Credit for Canadian tax: $12,000
Net U.S. tax owed: $0

For detailed RRSP guidance, read our complete RRSP guide for U.S. expats.

Canada Pension Plan (CPP) and Old Age Security (OAS)

Treatment depends on where you live:

If you live in Canada:

CPP and OAS are taxable only in Canada
No U.S. tax applies (treaty benefit)
Report on Canadian return only

If you return to the U.S.:

CPP and OAS are treated like U.S. Social Security
Taxable only in the U.S.
Report on Form 1040 as Social Security benefits

Learn more about Canadian pension taxation for U.S. citizens.

Tax-Free Savings Accounts (TFSAs) and RESPs

Critical warning: Although TFSAs are referred to as “tax-free” in Canada, they are not tax-free for U.S. purposes.

U.S. treatment:

All TFSA and RESP income is taxable to the IRS
Must file FBAR if balance exceeds $10,000
May require Form 8938 (FATCA) reporting
Form 3520 and 3520-A are no longer needed (post-2014 relief)

Example: Emma’s TFSA Problem

Emma has a C$55,000 TFSA earning C$2,500 in investment income. In Canada, this income is tax-free. For U.S. taxes:

Must report $1,850 as investment income on Form 1040
Pays U.S. tax of approximately $370
Cannot claim Foreign Tax Credit (no Canadian tax paid)
Must report account on FBAR

What About Canadian Property and Capital Gains?

Selling property in Canada creates potential tax obligations in both countries, but the rules differ significantly.

Principal Residence Exemption

Canada: Your principal residence is completely exempt from capital gains tax if you lived in it for all years of ownership.

United States: You can exclude up to $250,000 of gain ($500,000 if married filing jointly) if you owned and lived in the home for 2 of the last 5 years.

The problem: If your gain exceeds the U.S. exclusion, you’ll owe U.S. capital gains tax even though Canada doesn’t tax it. You cannot claim a Foreign Tax Credit because no Canadian tax was paid.

Example: Mark’s Vancouver Home Sale

Mark bought a home in Vancouver for C$600,000 in 2020 and sells it for C$1,000,000 in 2025:

Canadian capital gain: C$400,000 (US$296,000)
Canadian tax: $0 (principal residence exemption)
U.S. capital gain after $250,000 exclusion: $46,000
U.S. capital gains tax (15%): $6,900
No Foreign Tax Credit available
Net result: Owes $6,900 to the IRS

Learn more about Canada’s capital gains and attribution rules.

Investment Property

If you own investment property (not your primary residence), both countries tax the gain, but calculations differ:

Canada: Only 50% of capital gains are taxable.

United States: 100% of capital gains are taxable, but you can claim the Foreign Tax Credit for Canadian taxes paid.

Example: Rachel’s Rental Property

Rachel sells a rental property with a C$150,000 gain:

Canada taxes 50% of the gain (C$75,000) at her marginal rate of 40%: C$30,000 tax
U.S. taxes 100% of gain (US$111,000) at 15% long-term capital gains rate: US$16,650
Foreign Tax Credit for Canadian tax paid: US$16,650 or more
Net result: U.S. tax eliminated by FTC

What Are Common Mistakes U.S. Expats Make?

Avoid these pitfalls that catch many Americans in Canada by surprise:

1. Not filing U.S. returns because they owe $0: You must file to claim the FEIE or Foreign Tax Credit. Not filing results in penalties.

2. Missing FBAR reporting: If your Canadian accounts exceed $10,000 total at any point during the year, you must file FinCEN Form 114. Penalties start at $13,481 per account.

3. Treating TFSAs as tax-free: Remember, TFSAs are only tax-free in Canada. The IRS taxes all TFSA income.

4. Not understanding the Totalization Agreement: Make sure you’re not paying social security taxes to both countries. This only applies if you’re paying CPP contributions.

5. Assuming the Foreign Tax Credit works like the FEIE: These are different benefits that work in different situations. Many expats use the wrong one.

6. Forgetting about state taxes: Some U.S. states continue taxing former residents. Make sure you properly terminate state residency before moving.

7. Not reporting Canadian property sales: All worldwide capital gains must be reported to the IRS, even if tax-free in Canada.

How Can Greenback Help Americans Living in Canada with Taxes?

At Greenback, we specialize in U.S. expat taxes and work closely with Canadian tax partners to provide comprehensive cross-border tax services.

What makes us different:

We’ve helped over 23,000 expats file more than 71,000 returns while maintaining a 4.9-star rating across 1,200+ reviews. Many of our CPAs and Enrolled Agents are expats themselves, living in 14 time zones. They have the knowledge and patience to help you file correctly in both countries.

Our Canada-U.S. tax service includes:

U.S. federal tax return preparation
State tax return preparation (if needed)
FBAR filing
FATCA Form 8938 filing
Coordination with Canadian tax partners for dual filing
Strategic planning for FEIE vs. Foreign Tax Credit
Streamlined Filing packages for catching up

How the process works:

Upload your documents once through our secure portal. Your Greenback accountant and our Canadian partner work together behind the scenes to prepare both returns, ensuring optimal coordination and maximum tax savings. Learn more about our dual filing process.

No matter how late, messy, or complex your return may be, we can help. You’ll have peace of mind, knowing that your taxes were done right.

If you’re ready to be matched with a Greenback accountant, click the Get Started button below. For general questions on US expat taxes or working with Greenback, contact our Customer Champions.

Need Clear Answers on Your Canada–US Tax Situation?

Whether you’re confused about residency, credits, RRSPs, or double taxation, we can help. Connect with a Greenback accountant and get a coordinated filing plan with our Canadian partners.

This article provides general tax information for educational purposes. Tax laws are complex and subject to frequent changes. Always consult with a qualified tax professional for advice specific to your Canada-U.S. tax situation.

Canada-Specific Guides:

U.S. Tax Essentials:

Free Guide 15 Tax Tips Every American Expat Needs To Know in 2025

"*" indicates required fields

Name

This field is for validation purposes and should be left unchanged.