Moving Back to Canada From the U.S.: Tax Basics
The stepped-up Canadian cost on arrival, U.S. retirement accounts, continuing U.S. obligations, and the first return
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Someone who moves back to Canada becomes a Canadian resident when they establish residential ties. Canada treats most of their property as acquired at fair market value that day, so gains accrued while away aren't taxed in Canada, and only world income from that date is reported. U.S. citizens and green card holders remain U.S. taxpayers.
On this page
On arrival in Canada
| Item | Treatment |
|---|---|
| Residency date | When significant residential ties are established (the factual residency guide) |
| Deemed acquisition | Most property (other than taxable Canadian property, which kept its Canadian cost) deemed acquired at fair market value (ITA s.128.1(1)) |
| Departure tax unwind | If you still own property taxed when you left, you can elect by the filing due date for the return year to reduce that departure gain (ITA s.128.1(6)) |
| First return | Part-year: world income from the residency date; Canadian-source income before (if any) as a non-resident |
| T1135 | Required if specified foreign property cost more than C$100,000 at any time in the year — the first-year exemption (ITA s.233.7) covers only someone becoming resident for the first time, so a returning former resident files from the year of return |
U.S. accounts
IRAs and 401(k)s are recognized by Canada as foreign pensions — growth not taxed until withdrawn; withdrawals taxed in Canada with a credit for U.S. withholding; a lump-sum (non-periodic) IRA withdrawal — the part from your or your spouse's own contributions — can be contributed to an RRSP and deducted under section 60(j), without using RRSP room, by 60 days after year-end (the cross-border retirement guide). Roth IRAs need the one-time Canadian election (the TFSA vs Roth guide). U.S. brokerage accounts are reportable on T1135.
Continuing U.S. obligations
U.S. citizens remain taxable on worldwide income (the U.S. citizens in Canada guide). Green card holders remain U.S. residents until they formally give up the card (the green card guide). Others file a U.S. dual-status return for the departure year and may need a sailing permit (the sailing permit guide).
Frequently asked questions
Does Canada tax gains I made while living in the U.S.?
Generally no — most property is deemed acquired at fair market value when you become resident.
How are my IRA and 401(k) taxed in Canada?
As foreign pensions — taxed on withdrawal, with a credit for U.S. withholding.
Do I still file U.S. taxes after moving back?
Yes if you're a U.S. citizen or still hold a green card; otherwise a final dual-status return.
When do I start filing T1135?
From the year you return, if your foreign property cost more than C$100,000 — the first-year exemption is only for people becoming resident for the first time.
Official sources
The Canada Revenue Agency explains: “If you owned certain property at the time that you immigrated to Canada, the CRA considers you to have sold the property and to have immediately reacquired it at a cost equal to the fair market value (FMV) on the date that you became a resident of Canada.” — Canada Revenue Agency, Completing your return for newcomers, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants/completing-return-newcomers.html
The IRS explains: “If you are a U.S. citizen or green card holder living in Canada, you still have to file a Form 1040 and report your worldwide income because of the "saving clause" in Article XXIX(2), which allows the United States to tax its citizens and residents as if the treaty had not entered into effect.” — Internal Revenue Service, Publication 597 (10/2015), Information on the United States–Canada Income Tax Treaty, https://www.irs.gov/publications/p597
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle return-to-Canada planning — arrival valuations, first part-year returns, U.S. retirement account treatment, and final U.S. returns. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call