Roughly a million Americans live in Canada, and a large share of them are surprised — sometimes decades after moving — to learn that the IRS never stopped expecting an annual return. The United States taxes its citizens and green card holders on worldwide income, wherever they live. Filing a complete and correct Canadian return does not change that.

The good news: for most Americans in Canada, being compliant costs little or no actual US tax. The work is in the filings themselves.

The annual return: Form 1040

If your income exceeds the standard filing threshold, you must file Form 1040 each year reporting your worldwide income — Canadian salary, self-employment income, investment income, rental income, capital gains, all of it.

Two main tools usually eliminate or reduce US tax:

  • The foreign tax credit (Form 1116). Canadian income tax rates are generally higher than US rates, so credits for Canadian tax paid often wipe out the US liability on the same income — and excess credits can carry forward for up to ten years.
  • The foreign earned income exclusion (Form 2555). Alternatively, qualifying Americans abroad can exclude foreign earned income up to an annually indexed ceiling (US$130,000 for 2025). For most people in high-tax Canada, the credit route works better — but the right answer depends on your income mix, and switching back after electing the exclusion has consequences.

Americans abroad get an automatic filing extension to June 15, with further extensions available — but interest on any unpaid tax still runs from the April deadline.

The FBAR: report your Canadian accounts

Separately from the tax return, US persons whose non-US financial accounts exceed US$10,000 in aggregate at any point in the year must file the FBAR (FinCEN Form 114). That aggregate counts your chequing account, savings, RRSP, TFSA, investment accounts — even accounts you merely have signature authority over.

The FBAR is an information report — it produces no tax — but the penalties for ignoring it are among the harshest in the system. If your accounts are larger, Form 8938 (FATCA) may also be required with your return; the two reports overlap but neither replaces the other.

Canadian accounts the US treats differently

This is where Americans in Canada most often go wrong, because accounts that are tax-smart for Canadians can be tax-toxic for US persons:

  • RRSP / RRIF — the happy exception. The US–Canada treaty (and IRS administrative relief) allows tax deferral that matches the Canadian treatment. The accounts remain reportable on the FBAR and Form 8938.
  • TFSA — not recognised by the US. Income earned inside a TFSA is generally taxable on your US return, and depending on the investments held, PFIC reporting may apply. Whether a TFSA also triggers foreign-trust reporting is a question on which practitioner views differ — it should be a considered position, not an accident.
  • RESP — generally taxable to the US-person subscriber as it grows, including government grant money. Many cross-border families restructure so the non-US spouse holds the RESP.
  • Canadian mutual funds and ETFs — usually PFICs, which carry punitive default US taxation and Form 8621 reporting. US-listed ETFs typically avoid the problem.

If you own a Canadian company

A US person owning a Canadian corporation (a CCPC, a professional corporation, a holding company) generally must file Form 5471, and the company’s earnings can be taxed to the owner personally under the US anti-deferral rules even with no dividend paid. This deserves its own analysis — see our guide to Form 5471 and US owners of foreign corporations.

Behind on filings?

If you have lived in Canada for years without filing, do not start by quietly mailing in last year’s return. The Streamlined Foreign Offshore Procedures allow eligible non-willful taxpayers to catch up with three years of returns and six years of FBARs, with the offshore penalty waived. Read our guide to the streamlined procedures — and get advice before filing anything.

The bottom line

Living in Canada as a US citizen is one of the most manageable cross-border situations there is — high Canadian taxes mean credits usually cover the US bill, and the treaty smooths the rough edges. But the filings must actually be made, and the account-level traps (TFSA, RESP, Canadian funds) must be actively managed. An hour of specialist attention typically pays for itself many times over.