US citizens living in Canada as Canadian tax residents must continue to meet their US tax filing obligations by filing US federal tax returns on IRS Form 1040 each year. They will also file state income tax returns if necessary.
US citizens living in Canada are also responsible for filing Canadian tax returns to the CRA and need to pay all applicable tax on both the federal and provincial levels.
Needing to file income tax returns in two countries necessitates organization and careful planning. Since US persons must report foreign bank accounts and financial assets that they retain offshore to the IRS, US tax filings for Canadian tax residents can become complex, with several moving pieces.
Americans who move to Canada will establish bank accounts and financial assets in Canada. As such, they may have to meet FATCA filing requirements. Reportable financial assets under FATCA range from bank accounts to Canadian partnership interests and stocks and securities issued by non-US corporations. US persons with Canadian assets may also have to file FinCEN 114, the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR. Failure to comply with FBAR and FATCA requirements can lead to costly penalties. Additional US filings may have to be made to report interests in Canadian trusts.
Note that Canadian tax residents with certain foreign property holdings, such as some US trusts and bank accounts, are also required to report this foreign property to the CRA.
Given the complexities involved in filing taxes and complying with reporting obligations in both countries, Americans living in Canada typically require the assistance of cross-border financial planners and accountants. Some US citizens even choose to relinquish their US citizenship.