What do I actually have to file in both Canada and the United States?
More than a return each. On each side there is an income tax return, and then a body of information reporting alongside it: disclosures about foreign accounts, foreign holdings, interests in companies and trusts, and the treaty positions you are relying on. Information reporting carries its own penalties, assessed per form and per year, and they do not depend on any tax being owed, which is why the expensive failures in this corridor are usually reporting failures rather than unpaid tax. There may be a sub-national return as well. Build the list once for your own facts, because it is stable from year to year, and then work through it rather than from memory.
Do I need to report my foreign accounts on both returns?
Generally yes, and to different standards. Each country asks about accounts and assets held outside it, so the same account can be reportable in both places, described differently, valued on a different basis and disclosed on a different schedule. A holding that falls below one country's threshold may sit above the other's. Because the disclosure is separate from the tax computation, an account producing almost no income can still carry a reporting obligation with a substantial penalty attached to missing it. The workable approach is a single inventory of every account and holding, with the country, the opening and closing balances and the highest balance recorded, then mapped to each country's requirements.
How do I convert income between currencies for the two returns?
Each country wants its own currency, and the conversion method is part of the filing rather than an afterthought. Some amounts convert at the rate on the day of the transaction and others at an average for the year, while capital transactions usually need the rate on the date of acquisition and the date of disposal, which means an asset can show a gain in one currency and a smaller one, or none at all, in the other. Choose a defensible source for your rates, use it consistently, and keep the working. Two correctly prepared returns will not report the same income figure for the same year, and being able to explain why is what makes the credit claim stand up.
Do I have to file a state return as well?
Often, and it is the part most often overlooked. Sub-national filing follows its own rules about who is taxable and on what, and a state is not bound by the national treaty in the way the federal government is. So you can be outside the national charge on a particular item and inside the state charge on the same item, with no relief available at treaty level. Working days spent in a state, property held there and, in some cases, having been resident earlier in the year can each create a filing obligation. Identify the states involved from workday and property records before the returns are prepared, not afterwards.
What do I file the year I move between the two countries?
A year of arrival or departure is the hardest return in the sequence, because residence changes partway through it and the two countries divide the year differently. Expect a part-year or split treatment, income allocated to the period it relates to rather than the date it was paid, and reliefs that apply to only part of the year. There may also be a charge arising on ceasing residence, and disclosure of assets held at the moment residence changed. The evidence that decides all of it, being travel dates, the day a home was given up or taken on, employment start and end dates, and asset values at the change of residence, is easy to capture then and hard to reconstruct later.
My accountant files one country only, is that a problem?
It is workable only if somebody is looking at both. The two returns are connected. The credit claimed on one depends on the liability finally settled on the other, the same income is measured on two different bases, and a position taken in one country can remove a relief in the other. Where each side is prepared independently, the usual results are a credit claimed for tax that was withheld rather than actually due, information reporting that exists on one side and not the other, and an amendment in the following year. Whether one adviser prepares both or two coordinate, insist the figures are reconciled before either return is filed.
Which country do I pay tax to first?
Generally the source country — where the income arises — taxes first, often by withholding before you receive it. Your country of residence then taxes the same income and credits what the source country took. That order is why timing matters: a residence-country return filed before the source-country tax is settled has nothing to credit yet. Getting the sequence right is most of the work. See international tax planning.
How do you avoid double taxation?
You claim relief once, in the right country, in the right order. Usually the source country taxes first, the residence country then gives a credit for that tax against its own charge on the same income, and a treaty caps the source-country rate. Getting the order wrong is what produces a double charge you then have to unwind. The mechanism differs by income type, which is why we map the whole position before filing either return. See how to avoid double taxation.
