You’ve lived in Vancouver for 25 years, raised your kids there, and filed your taxes like a good citizen.
Then comes a letter from the IRS—demanding details about your foreign bank accounts, retirement plans, and decades-old investments.
Surprise: you’re still on their radar.
Welcome to the never-ending tax maze for U.S.–Canada dual citizens.
Whether you moved north for love, work, or a better life, the IRS hasn’t forgotten you—and neither has the CRA. Living under two tax authorities isn’t just a paperwork hassle—it’s a potential financial minefield.
Dual Filing, Double Trouble: Why the IRS and CRA Both Want You
The U.S. is one of only two countries in the world that taxes based on citizenship, not just residency.
That means if you’re a U.S. citizen living in Canada, you must file annual tax returns with both the IRS and the Canada Revenue Agency (CRA)—no matter where your income is earned.
You’re expected to:
- Report worldwide income in both countries
- Disclose all foreign bank accounts and investments
- Track compliance for any foreign corporations, trusts, and retirement plans
Miss a single step? Expect penalties, interest, or worse.
Foreign Tax Credits: Your Lifeline (But Not a Complete Cure)
To reduce double taxation, both countries allow foreign tax credits.
If you paid income tax in Canada, you can often use that to offset your U.S. tax bill (and vice versa).
But the process is far from simple:
- You must align tax years and income categories
- File the correct forms (like Form 1116 for the U.S.)
- Navigate differences in deductions and tax rates
Not all income is treated equally either—especially rental properties and passive investments.
Canadian Residency Rules: How the CRA Decides If You Owe Up North
The CRA determines tax residency based on:
- Your primary home
- Presence of spouse or dependents
- Your intent to live in Canada long-term
Once classified as a Canadian tax resident, you must report and pay taxes on your global income—even if it’s earned in the U.S. or elsewhere.
So, if you’re a dual citizen living full-time in Canada, you’re automatically within both tax systems.
Cross-Border Assets: Death, Gifts, and Retirement Pitfalls
RRSPs and TFSAs
- RRSPs: Tax-deferred in both countries, if properly reported on Form 8938 and FBAR.
- TFSAs: Not recognized by the IRS, meaning all income inside them is taxable in the U.S.
Inheritances and Gifts
Receiving a large gift or inheritance from outside the U.S.?
If it exceeds certain thresholds (e.g., $100,000 from a non-U.S. person), you must file Form 3520—even if it’s not taxable.
Rental Income and Foreign Real Estate: The Hidden Traps
If you own property abroad, both the CRA and IRS want their cut. You must:
- Report rental income in both countries
- Deduct expenses correctly (Canada allows more, but only if filed properly)
- Report currency fluctuations, mortgage interest, and capital gains precisely
Small mistakes here can easily lead to audits or penalties.
Miss a Form? The IRS Doesn’t Forget
Forgetting to file FBAR, Form 8938, or T1135 can cost you dearly.
These are not optional.
- FBAR penalties can range from $10,000 to $100,000+ per violation
- Even if you owe no tax, failure to disclose can trigger severe fines
The IRS often assumes “guilty until proven compliant”—especially for large foreign account balances.
Thinking of Renouncing? Beware the $2 Million Exit Tax
Considering giving up your U.S. passport to escape the IRS?
You may face the U.S. Exit Tax if:
- Your net worth exceeds $2 million USD, or
- Your average tax liability over the past five years is above $201,000 (2025 threshold)
The IRS treats you as if you sold all your global assets the day before expatriation—and taxes the unrealized gains.
And remember: you must be fully tax compliant for at least 5 years before renouncing. Past mistakes won’t disappear.
5 Smart Moves to Survive the Cross-Border Tax Crossfire
- Stay compliant every year—even if you owe $0
- File FBARs, T1135s, and Form 8938 accurately and on time
- Use foreign tax credits strategically, not automatically
- Understand the U.S.–Canada Tax Treaty (know what’s covered and what’s not)
- Work with cross-border tax professionals, not local-only accountants
Final Thought: Don’t Wait for an IRS Letter to Panic
Thousands of U.S.–Canada dual citizens are one letter away from disaster.
If you’re unsure about your account disclosures or past filings, don’t go it alone.
SR Financial Tax Advisors Can Help You Breathe Again
At SR Financial Tax Advisors, we specialize in cross-border tax strategy for U.S.–Canada dual citizens.
We help you:
- Stay compliant with both IRS and CRA rules
- Claim every credit and exemption you deserve
- Create a long-term plan to reduce your tax burden
- Avoid costly mistakes with retirement accounts, real estate, and inheritance
Don’t face the IRS or CRA alone.
Let us handle the maze for you.
Book your free consultation today at SR Financial & Tax Advisors.