Returning to Canada After Years in the US: The Re-Entry Checklist for Your IRA, US Home, State Residency, and Arrival Basis

Short version: Moving Back to Canada From the U.S.: Tax Basics

Coming home is administratively simpler than leaving — Canada welcomes returning residents with a cost-basis reset and no arrival tax — but the returning Canadian carries US assets and a US filing history that the ordinary newcomer does not, and the re-entry has a sequence. Before the border. The US retirement accounts: the IRA and 401(k) are kept (the transfer guide explains why the 60(j) rollover usually loses), with the custodian's Canadian-address policy confirmed and, where a custodian will not hold accounts for Canadian residents, a transfer to one that will — executed before the move, while the account holder is still a US resident and custodians are cooperative; the Roth IRA is kept with the treaty election planned for the first Canadian return and any conversions completed before the residency date (the Roth-conversion guide); and the TFSA room that accrued before departure (and did not accrue during non-resident years) is noted for use after return. The US home: sold before the move if the section 121 exclusion is the plan (ownership and use tests met, the gain excluded up to the limits, no Canadian tax because the sale precedes Canadian residency) — or kept as a rental with the net-election and withholding machinery the US-property guides cover, and with the Canadian arrival cost basis set at fair market value on the return date (so that Canada taxes only post-return appreciation); the sell-before-or-after decision the Florida-home guide models. State residency: the departure from a US state is documented (the state-residency guide — the break matters most for high-tax states and for any state-source income that continues), the final part-year state return planned, and the federal law protecting nonresidents' retirement income from state tax noted (the California guide). The US filing history: the returnee's last US resident year is a dual-status year (resident through the departure date, nonresident after — or a full-year resident election where advantageous), with the final resident-period return carrying the usual information returns for Canadian accounts held during residency (FBAR and Form 8938 for the RRSP and any Canadian accounts kept open while in the US), and — for a returnee who is not a US citizen or green card holder — the US filing obligation ending with the departure year except for US-source income after it (the IRA distributions at treaty rates, US rental income, US-source investment income at withholding rates). The green card holder returning to Canada has the additional and larger question of whether to abandon the green card (the exit-tax guide for long-term residents covers the eight-year rule and Form 8854) or keep it with its continuing worldwide US filing obligation and the residency-preservation requirements immigration law imposes. At the border: the Canadian residency start date is fixed by the facts (the newcomer guides — the day residential ties are re-established: the home, the family, the return in fact), and it is the date from which Canada taxes worldwide income and the date at which the arrival cost basis is set — every non-Canadian asset (US investments, US real property, the US home if kept) is deemed acquired at its fair market value on that date for Canadian purposes, so the returnee documents values on the arrival date (statements, appraisals) as the foundation of every future Canadian gain computation; the US does not reset basis (historical cost remains for US purposes — the mismatch the arrival-basis guide covers, relevant to the returnee who keeps US citizenship or US-source assets). After arrival. The old departure file: a returning Canadian who still owns property that was deemed disposed on the original departure — shares of a Canadian private company, a Canadian investment account, anything on the T1161 that was not sold — may elect to unwind the departure-tax deemed disposition for that property (the unwind guide covers the election and the refund of tax paid on emigration), a step that requires the original departure file and is worth real money for anyone who paid departure tax on appreciated property they still hold. The first Canadian return: the part-year T1 from the residency date (worldwide income from that date; pre-arrival income excluded; the newcomer's proration of personal credits), the Roth election letter, the T1135 for the US accounts above the threshold (the newcomer's first-year exemption applies — the T1135 guide — so the first return may not require it), the RRSP room carried forward from before departure plus room from any Canadian earned income, and the foreign tax credit for US tax on any US-source income after the residency date. The go-forward system: the US accounts reported annually on the T1135; the IRA distributions in retirement at the treaty's 15% periodic rate with the W-8BEN on file (the withdrawal guide); the RRSP contributions resumed; the TFSA reopened with the accumulated room; Canadian mutual funds permitted again for the non-US-person returnee (the PFIC constraint applied only while a US person); and — for the returnee who remains a US citizen — the full American-in-Canada apparatus (the 1040 with foreign tax credits, FBAR and 8938, PFIC avoidance, the TFSA skipped) continuing indefinitely, which is the structural difference between the returning Canadian citizen and the returning dual citizen. The traps: selling the US home after the residency date without planning (Canadian tax on the gain from arrival basis — usually small — but section 121 on the US side only if the tests are still met); leaving the IRA at a custodian that later forces a distribution; forgetting the unwind election for departure-taxed property still held; letting the US state believe the residency continues; and treating the return as a fresh newcomer arrival when it is also the reversal of a departure with its own file.

Key takeaways

• Before the border: confirm the IRA and 401(k) custodians accept Canadian residents (transfer if not), complete any Roth conversions, decide the US home (sell under section 121 before, or keep with the arrival-basis reset), break state residency, and — for green card holders — decide the card's fate under the exit-tax rules.
• The last US year is dual-status (or full-year by election), with FBAR and 8938 for Canadian accounts held during residency; US filing ends with the departure year for non-citizens except for US-source income after it.
• At the border: the residency start date sets the arrival cost basis at fair market value for every non-Canadian asset — document values that day; the US keeps historical basis (a mismatch for citizens and US-source assets).
• The unwind election: property still held that was deemed disposed on the original departure can have the departure tax reversed and refunded — a returning resident's most overlooked item, requiring the old departure file.
• The first return: part-year T1 from the residency date, the Roth election letter, T1135 (with the newcomer first-year exemption), RRSP room from before departure, TFSA room accumulated before departure.
• Go-forward: T1135 annually, IRA distributions at 15% with a W-8BEN, RRSP and TFSA resumed — and, for returning US citizens, the full American-in-Canada apparatus continues indefinitely.

The re-entry calendar

Six months before: custodian confirmations and transfers; Roth conversions; US home decision; state departure planning; green card decision. Move month: residency date fixed; arrival values documented; state final return planned. First spring: the dual-status US return with information returns; the part-year T1 with the Roth election, the unwind election for departure-taxed property, and the newcomer credit proration. Following years: T1135, the withdrawal setup for US retirement accounts, the reopened Canadian accounts. The calendar is the departure calendar in reverse, with the old departure file as its most valuable input.

Worked example

A Canadian citizen returns to Toronto after nine years in Seattle: a US$540,000 401(k), a US$90,000 Roth, a Seattle house (US$400,000 gain), shares of a Toronto private company (deemed disposed on her original departure with C$60,000 of departure tax paid, still held), and Washington state residency. Before the border: the 401(k) is rolled to an IRA at a custodian that accepts Canadian addresses; a final Roth conversion of US$40,000 is executed in her last US-resident year; the Seattle house is sold before the move (section 121 excludes US$250,000 of the gain; the balance is US-taxed at long-term rates; no Canadian tax — pre-residency); Washington has no income tax to leave. Move month: Toronto residency begins on arrival; her US brokerage account's holdings are valued that day for Canadian cost basis. First spring: the US dual-status return (resident through the move date, with FBAR and 8938 for the RRSP she'd kept through the Seattle years; no US filing after that except 1042-S-level items); the part-year T1 with the Roth election letter, the newcomer credit proration, and — the item her old departure file makes possible — the election to unwind the deemed disposition of the private company shares still held: the C$60,000 of departure tax is refunded through an amended departure-year return, and the shares' cost base reverts to the original. Go-forward: the IRA on her T1135 (after the first-year exemption), a W-8BEN with the custodian for the eventual 15% periodic withdrawals, RRSP contributions resumed against room carried from before departure, the TFSA reopened with nine years' unused room (accrued only for the resident years before departure — the non-resident years added nothing), and Canadian index funds permitted again because she is not a US person. Her neighbor, a dual citizen returning from Portland the same month, ran the same checklist plus one permanent difference: the 1040, the FBAR, the 8938, and no TFSA — forever — because the citizenship came home with him.

Official sources

"You become a resident of Canada for income tax purposes when you have enough residential ties in Canada. For most newcomers, this starts the first day you live in Canada." — Canada Revenue Agency, Newcomers to Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants.html

"If you ceased to be a resident of Canada after October 1, 1996, and you later re-establish Canadian residency for income tax purposes, you can elect to make an adjustment to the deemed dispositions that you reported when you emigrated from Canada." The election "to unwind may result in the reduction or elimination of the tax owing for the gain from the previously reported deemed disposition of property on emigration (departure tax)." — Canada Revenue Agency, Dispositions of property for emigrants of Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/dispositions-property.html

Practitioner note

The returning Canadian is a newcomer carrying a departure file, and the two most valuable items on the checklist are the ones nobody mentions: the unwind election that refunds departure tax on property still held, and the custodian confirmation that keeps the IRA from being forced out at 30%. Our re-entry calendar runs six months before the border to the first spring's returns, in the departure calendar's reverse order, and the difference between the returning citizen and the returning dual citizen — the American apparatus that never ends — is stated on day one.

See also: Browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the re-entry engagement — pre-move custodian, Roth, US-home, and state decisions, the residency date and arrival-basis documentation, the unwind election for departure-taxed property, the dual-status US and part-year Canadian returns, and the go-forward reporting system. See cross-border pricing or book a call.