The Green Card Holder Living in Canada: A US Resident for Tax Purposes Wherever You Are

A lawful permanent resident of the United States is a US resident for tax purposes under the green card test from the day the card is issued until the day it is formally abandoned or revoked, regardless of where the holder lives. A green card holder who moves to Canada files a US Form 1040 on worldwide income every year, alongside the Canadian T1, and files the FBAR and Form 8938 on Canadian accounts. The treaty offers a way out (claiming Canadian residence under the tie-breaker), but using it carries immigration consequences and, for long-term holders, the exit tax. The card is a tax status as much as an immigration one.

Key takeaways

• Green card test: a lawful permanent resident is a US resident alien for tax purposes from the admission date until the status is rescinded or abandoned. Living abroad does not change it; an expired card does not change it; only formal abandonment (Form I-407) or a final administrative or judicial determination does.
• Obligations in Canada: annual 1040 on worldwide income with the foreign tax credit (Form 1116) or FEIE (Form 2555); FBAR on Canadian accounts above $10,000 aggregate; Form 8938 above thresholds; PFIC rules on Canadian mutual funds; TFSA and RESP foreign trust exposure; Form 5471 on a Canadian corporation. Same as a US citizen.
• The treaty tie-breaker: a green card holder resident in Canada under Canadian rules can claim treaty residence in Canada under Article IV, filing a 1040-NR with Form 8833 instead of a 1040. Immigration authorities may treat this as evidence of abandonment, and for a long-term resident (eight of the last fifteen years) it is treated as expatriation, triggering the exit tax rules.
• Abandonment: filing Form I-407 ends US tax residency on the filing date. A long-term resident who abandons is subject to the expatriation rules and may be a covered expatriate (net worth over $2 million, average tax over the threshold, or non-certification of five years' compliance), owing the exit tax.
• Re-entry permits preserve the immigration status during a long absence but do nothing for tax.

The obligations

A green card holder in Canada files exactly what a US citizen in Canada files: the 1040 with Canadian income converted to US dollars, the foreign tax credit or FEIE, the FBAR, Form 8938, and the account-specific forms. Canadian tax on employment income usually exceeds US tax, so the FTC eliminates US tax on it and produces carryforwards. Canadian investment income can leave a residual, and the NIIT applies to investment income above the threshold with no credit. Canadian mutual funds are PFICs; the TFSA is taxable and potentially a foreign trust; the RRSP is deferred under the treaty.

The Canadian T1 is filed as a Canadian resident on worldwide income, with a foreign tax credit for US tax on US-source income.

The treaty option

Article IV assigns a dual resident to the country of the permanent home, then centre of vital interests, then habitual abode. A green card holder living in Canada with a home and family there is assigned to Canada. Claiming that position means filing a 1040-NR (US-source income only) with Form 8833 disclosing the treaty-based position, and treating the year as a non-resident year for US income tax. FBAR and Form 8938 obligations generally continue because they attach to green card status, not treaty residence.

The two risks: US Citizenship and Immigration Services and the State Department may treat a treaty non-resident claim as evidence that the holder has abandoned permanent residence, jeopardizing the card. And for a long-term resident (a green card in eight of the fifteen tax years ending with the current year), claiming treaty residence in another country is deemed expatriation under section 877A, so the exit tax rules apply exactly as if the card had been surrendered. A long-term resident who wants to keep the card should not claim the treaty position without weighing the exit tax.

Abandonment and the exit tax

A holder who no longer needs the card files Form I-407 with USCIS (or at a port of entry) and ceases to be a US tax resident on the filing date, filing a dual-status return for the year. A long-term resident is subject to the expatriation rules: if net worth is $2 million or more, or average US tax for the prior five years exceeds the indexed threshold (about $200,000), or the holder cannot certify five years of US tax compliance on Form 8854, they are a covered expatriate. A covered expatriate is deemed to sell all worldwide assets the day before expatriation, with the gain above an exclusion (about $890,000) taxed; deferred compensation and certain trusts are taxed on distribution; and US-person recipients of gifts or bequests from them face a tax under section 2801. Abandoning before reaching eight years avoids the long-term resident rules entirely.

Worked example

A Canadian who worked in the US for six years on a green card returns to Toronto in 2024, keeps the card, and buys a Toronto home. In 2026 she is offered a Toronto job at $180,000 CAD and has $1.5 million of assets.

• Status. US resident under the green card test; Canadian resident under Canadian rules. Dual resident.
• Option A: file as a US resident. 1040 on worldwide income; foreign tax credit eliminates US tax on the salary; FBAR and 8938 on Canadian accounts; no TFSA, no Canadian mutual funds; keeps the card intact.
• Option B: claim treaty residence in Canada. 1040-NR with Form 8833; US tax only on US-source income. She has held the card in six of the last fifteen years, not eight, so no expatriation consequence yet; immigration risk to the card.
• Option C: abandon. Form I-407; dual-status 2026 return; not a long-term resident (six years), so no exit tax; obligations end.
• Timing. If she waits until 2028 (eight years), Options B and C both trigger the expatriation rules, and with $1.5 million she is under the net worth threshold but must certify five years of compliance to avoid covered expatriate status.

Official sources

"You are a resident, for U.S. federal tax purposes, if you are a lawful permanent resident of the United States at any time during the calendar year. [...] You continue to have U.S. resident status, under this test, unless: You voluntarily renounce and abandon this status in writing to the USCIS, Your immigrant status is administratively terminated by the USCIS, or Your immigrant status is judicially terminated by a U.S. federal court." — Internal Revenue Service, U.S. tax residency – Green card test, https://www.irs.gov/individuals/international-taxpayers/us-tax-residency-green-card-test

"IRC 877A imposes a mark-to-market regime, which generally means that all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date." — Internal Revenue Service, Expatriation Tax, https://www.irs.gov/individuals/international-taxpayers/expatriation-tax

"Taxpayers use this form to make the treaty-based return position disclosure required by Internal Revenue Code section 6114. Dual-resident taxpayers use this form to make the treaty-based return position disclosure required by Regulations section 301.7701(b)-7." — Internal Revenue Service, About Form 8833, https://www.irs.gov/forms-pubs/about-form-8833

Practitioner note

The green card holder in Canada has a decision with a clock on it: before eight years, abandoning or claiming the treaty is a clean exit; after eight years, either one is an expatriation with a Form 8854 and potential exit tax. We count the years on the first meeting and give the client the date the door narrows.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the annual US return and FBAR for green card holders in Canada, the treaty residence analysis, and the abandonment and expatriation planning. See cross-border pricing or book a call.