US citizen in Canada: file a T1 and a 1040, credits stop double tax

Canada taxes on residence, the US on citizenship: what each return needs

Canada taxes a resident on worldwide income from all sources, and the residence test turns on ties to Canada, not on citizenship canada.ca. The US taxes its citizens on worldwide income wherever they live irs.gov. So your client files both returns every year the US gross income test is met, and income excluded as foreign earned income still counts toward that test irs.gov.

The Canadian dates come from the CRA, including the rule that a June 15 filer still pays by April 30 canada.ca. The June 15 US date applies only if your client attaches a statement to the 1040 saying they live outside the US, and interest still runs on tax not paid by April 15 irs.gov.

Prepare the T1 first. Canada's credit for US tax is capped by the treaty, and the US credit is then built on the Canadian tax left after that Canadian credit, so the 1040 can't be finished until the T1 numbers are. If your client might also be a US resident under its domestic rules, the treaty tiebreaker decides, and if it points away from Canada, s.250(5) deems them a nonresident of Canada canada.ca; see Canadian tax residency.

Which US information returns does a Canadian resident citizen file?

The forms that cost clients money are rarely the 1040 itself. They're the information returns, which apply even when no US tax is owing irs.gov.

Sources for the table: FBAR dates and the indexed penalties irs.gov, the Form 8938 thresholds and penalty irs.gov, the PFIC reporting exception irs.gov, the credit rule irs.gov, and the 2026 exclusion of US$132,900, up from US$130,000 for 2025 irs.gov.

Canadian mutual funds are reported on both the FBAR and Form 8938, while benefits from a foreign government's social security type program go on neither irs.gov. If you file the FBAR for your client, you register as a BSA electronic filer and file as an institution; your client filing alone needs no registration fincen.gov.

The same holdings flip on the Canadian side. Canadian accounts are foreign for the FBAR, while a US brokerage account is specified foreign property for Form T1135, which uses the simplified Part A method when the total cost is more than $100,000 but stays under $250,000 all year canada.ca. See T1135 filing requirements.

Which country credits which tax?

On Canadian source income, such as a salary from a Canadian employer, Canada keeps all of its tax. Form T2209 excludes foreign tax charged because your client is a citizen of that country when it relates to income from a source in Canada canada.ca. The relief comes on the 1040: a Form 1116 credit for the Canadian tax, or the foreign earned income exclusion on wages irs.gov. Your client can't claim a credit for tax on income they exclude irs.gov.

On US source income, the treaty orders the credits. Under Article XXIV(4), Canada credits the US tax but need not credit more than the US would charge if your client weren't a citizen; the US then credits the Canadian tax left after that, without reducing the US tax Canada already credited. Paragraph 5 runs the same order for dividends, interest and royalties, and paragraph 6 deems the income to arise in Canada to the extent the US credit needs it canada.ca. Those paragraphs survive the saving clause in Article XXIX(2), because Article XXIX(3)(a) carves out Article XXIV canada.ca.

Worked example. Your Ontario client, a US citizen, earns $10,000 of interest from a US bank account and $10,000 of dividends from a US company, both converted to Canadian dollars. For illustration, assume a 40% Canadian rate on both, a 24% US rate on the interest and 15% on the dividends. A non citizen resident in Canada would owe the US nothing on the interest (Article XI(1)) and 15% on portfolio dividends (Article X(2)(b)).

Both items end at the Canadian rate. Canada keeps its tax on the interest, and the US keeps only the 15% it would collect from anyone. The unused $1,600 of credit on the interest stays on Form 1116. On the Canadian side the credit still runs through T2209, with its per country limit and the 15% cap on property income; see the foreign tax credit page. For the treaty rates themselves, see Canada US treaty withholding.

For a paper T1, attach the W-2, the 1040 and the IRS account transcript along with T2209 canada.ca. Convert foreign income and tax at the Bank of Canada rate for the day each amount arose, or the annual average rate for payments spread over the year canada.ca.

How do RRSPs, TFSAs, RESPs and Canadian funds look to the IRS?

RRSPs and RRIFs defer on the US side. Article XVIII(7) lets a citizen elect to defer US tax on income accrued in a plan operated exclusively to provide pension or employee benefits until it's distributed canada.ca, and that paragraph is one of the exceptions to the saving clause. Rev. Proc. 2014-55 treats an eligible individual as having made the election, provided they've met their US filing requirements and reported plan distributions as if they had elected. It made Form 8891 obsolete as of December 31, 2014 and removed Form 3520 and 3520-A reporting for these plans irs.gov.

A TFSA gets no US shelter. It isn't a pension or employee benefit plan, so Article XVIII(7) doesn't reach it canada.ca. Rev. Proc. 2020-17 covers only trusts operated exclusively or almost exclusively to provide retirement, medical, disability or educational benefits, and it doesn't name the TFSA irs.gov. Plan on reporting the income on the 1040 as it's earned. Canada gives nothing back for any US tax on it, because T2209 leaves TFSA income and the tax on it out of the credit canada.ca. For the Canadian limits, see TFSA limit 2026.

An RESP may fit Rev. Proc. 2020-17's education trust definition, which needs an education purpose, contributions limited to US$10,000 a year or US$200,000 for life, and withdrawals tied to education or penalized irs.gov. An RESP has no annual limit and a $50,000 lifetime limit per beneficiary canada.ca, and accumulated income payments carry an additional 20% tax (12% in Quebec) canada.ca. The revenue procedure doesn't name RESPs, and it only lifts Form 3520 and 3520-A reporting: it leaves Form 8938 and the FBAR in place, and it requires the income to have been reported where US law taxes it irs.gov.

Canadian mutual funds and ETFs are the expensive surprise. A foreign corporation is a PFIC if 75% or more of its gross income is passive or at least 50% of its average assets produce passive income irs.gov, and a fund holding stocks and bonds can meet either test easily. Under the default section 1291 rules, the whole gain on a sale is treated as an excess distribution, and the parts allocated to earlier PFIC years carry a separate tax plus an interest charge irs.gov. Holding the fund inside a TFSA or RESP doesn't change that.

What else catches US citizens living in Canada?

Selling the home. Canada's principal residence exemption can shelter the whole gain (see principal residence exemption), but the US excludes only up to US$250,000, or US$500,000 on a joint return, and only after 24 months of ownership and use in the last five years irs.gov. The gain above that is taxed in the US with no Canadian tax to credit against it.

US Social Security. Article XVIII(5) is also outside the saving clause, so US benefits paid to a Canadian resident are taxable only in Canada, with 15% of them exempt canada.ca. The detail, including the older recipient rule, is on US Social Security taxed in Canada.

Clients who never filed US returns. The streamlined foreign offshore procedures need a citizen to have had no US abode and to have been outside the US for at least 330 full days in any one or more of the three most recent years, with failures that weren't willful. Your client files the three most recent years of returns with all information returns, six years of FBARs and a signed Form 14653, and pays the tax and interest. In exchange, the IRS doesn't charge failure to file, failure to pay, accuracy, information return or FBAR penalties irs.gov.