Tax Filing Requirements

Canada

Many people move to the US and just stop filing Canadian tax returns because they believe that since they no longer live in Canada , they don't have to file tax returns anymore.  They are correct that the Revenue Agency taxes based on Canadian residency but what these folks don't know about is the "deemed disposition" when leaving Canada .  When you leave Canada , you have to file an "exit" return which states that you are severing your ties with Canada and no longer subject to Canadian taxation.  For married couples that are leaving Canada at different times, the Revenue Agency determines the exit date to be that of the spouse that leaves Canada last.  This tax return is due by April 30 of the year after the last spouse leaves Canada.

Exit Return - The Revenue Agency agrees to cease taxing you when you leave, but takes its "pound of flesh" beforehand because all taxable property you own worldwide is "deemed" sold and repurchased again (whether you actually do it or not).  This includes your brokerage accounts, US real estate, businesses, etc.  This can mean potentially large capital gains on your final exit return and a large tax liability owed before you are sent on your merry way.  Note that this is not an extra tax that you pay, it is simply an early collection of tax before you leave Canada .  With proper planning, there is a good chance that the taxes can be mitigated significantly while reducing your US taxes at the same time.  One client we worked with recently had to pay in excess of C$55,000 in tax because they did not do the requisite planning BEFORE they left Canada!

Part XIII - Once you are in the US , Canada retains the right to tax any Canadian source income according to the rates specified in the Canada/US Tax Treaty.  If too much withholding is taken, you will be over-taxed and if you are under withheld, you will begin receiving tax bills from the Revenue Agency for the balance.  You need to review all your Canadian sources of income to ensure the correct withholding has been taken per the Treaty and if necessary, prepare a Part XIII tax return to sort out your tax obligations or refunds with Canada.

US

Unlike Canada which taxes based on Canadian residency alone, the US taxes based on US citizenship or residency.  Therefore, if you are a US citizen or a "Green Card" holder living anywhere in the world, you must file tax returns in the US for every year you meet the minimum filing requirements.  Likewise, when Canadians take up residency in the US , they must file a US tax return and report their worldwide income.  There are different ways of filing your US returns to minimize your tax liability and depending on your situation, several tax and compliance elections that need to be taken.  Needless to say this is a complex tax return to complete because most US CPAs have no idea how to handle the Canadian RRSPs, non-resident alien spouses, etc.  It is in your best interest to get the assistance of a professional who regularly works in this area to ensure you remain in compliance with the IRS, coordinate your US return with your Canadian return so your total tax liability in both countries is minimized.  This tax return is due by April 15 of the year after you enter the US.