Dual Citizen (US/Canada)
As a dual citizen of the US and Canada, both countries claim taxing rights on your worldwide income. The Savings Clause in the Canada-US Tax Treaty limits treaty relief, making this the most complex cross-border tax persona.
US Status
US citizen (taxed on worldwide income regardless of residence)
Canada Status
Resident or non-resident depending on where you live and your ties
Typical Forms Required
- Form 1040 (US Individual Income Tax Return, required even if living in Canada)
- FinCEN 114 / FBAR
- Form 8938 / FATCA
- Form 3520 / 3520-A (TFSA)
- Form 8621 (PFIC for Canadian mutual funds and ETFs)
- Form 1116 (Foreign Tax Credit)
- Form 8833 (treaty-based positions)
- Form 8854 (if renouncing US citizenship)
- T1 General (Canadian return if Canadian resident)
- T1135 (Canadian foreign income verification for US assets, if applicable)
Key Risks
The Savings Clause prevents most treaty benefits for US citizens, causing double taxation gaps
PFIC exposure on all Canadian mutual funds, ETFs, and certain holding company shares
TFSA treated as a foreign trust requiring annual Forms 3520/3520-A
RESP and RDSP have no treaty protection; income may be currently taxable in the US
Renunciation triggers covered expatriate exit tax if thresholds are met
Step-by-Step Filing Guide
- 1
File Form 1040 annually reporting worldwide income, regardless of which country you reside in.
- 2
File a Canadian T1 return if you are a Canadian resident, reporting worldwide income to CRA.
- 3
File FBAR for all non-US financial accounts (Canadian bank, brokerage, RRSP, RESP accounts).
- 4
Complete Form 8938 for foreign financial assets exceeding the applicable threshold.
- 5
File Form 8621 for each Canadian mutual fund or ETF held (each fund is a separate PFIC).
- 6
File Forms 3520 and 3520-A for any TFSA held during the year.
- 7
Calculate Foreign Tax Credits (Form 1116 for US return, T2209 for Canadian return) to mitigate double taxation.
- 8
If considering renouncing US citizenship, obtain professional advice on exit tax under IRC 877A and the $2,350 State Department fee.
Frequently Asked Questions
Do I really have to file US taxes if I live in Canada and have never lived in the US?
Yes. The US taxes citizens on worldwide income regardless of residence. If you are a US citizen (even by birth to a US parent), you must file Form 1040 annually and report all foreign accounts.
What is the Savings Clause and why does it matter?
Article XXIX(2) of the Canada-US Tax Treaty allows each country to tax its own citizens and residents as if the treaty did not exist, with limited exceptions. This means most treaty benefits do not reduce your US tax burden as a US citizen.
Can I hold Canadian ETFs as a dual citizen?
You can, but each Canadian ETF is a Passive Foreign Investment Company (PFIC) requiring annual Form 8621 filing. The punitive PFIC tax regime makes holding them very costly. US-listed ETFs are generally more tax-efficient.
What does it cost to renounce US citizenship?
The State Department charges a $2,350 renunciation fee. Additionally, you may face exit tax under IRC 877A if you are a covered expatriate. You must file Form 8854 and five years of back tax returns if not already compliant.
How do I avoid double taxation as a dual citizen?
Primarily through Foreign Tax Credits. Taxes paid to Canada can offset US tax on the same income (Form 1116), and vice versa (T2209). However, timing differences and income category limitations can leave gaps.
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