Tax Planning for New Canadian Residents

Becoming a Canadian tax resident triggers one of the most valuable — and most time-sensitive — planning moments in personal tax. Under paragraph 128.1(1)(b) of the Income Tax Act, the day your Canadian residency begins, you are deemed to dispose of and reacquire most of your worldwide property at fair market value. The practical effect is a one-time cost-base reset: all the appreciation that built up on those assets before you arrived is sheltered from Canadian tax, and only growth from the residency date forward is exposed to Canadian capital-gains tax. The catch is that the reset is fixed at a single moment. Once residency begins, the values are locked, the planning window has closed, and there are no second chances to set the numbers. Most of the value in pre-immigration tax planning is captured in the weeks before that date — which is why this work begins well in advance, not after the move.

For people relocating to Canada from the United States, the picture is doubly important, because the Canadian step-up has to be coordinated with whatever the US is doing on the way out. A US citizen does not stop being a US taxpayer by moving to Canada, and a green-card holder who surrenders the card may face the US expatriation rules. Getting the Canadian arrival right while mishandling the US departure can erase much of the benefit. This page explains the mechanics on both sides, where the Canada-US tax treaty does and does not help, and the traps that surprise newcomers most often.

The cost-base reset under paragraph 128.1(1)(b)

When a taxpayer becomes resident in Canada, paragraph 128.1(1)(b) deems them to have disposed of each property at fair market value immediately before residency, and paragraph 128.1(1)(c) deems them to have reacquired that same property at a cost equal to those proceeds. Because the deemed disposition happens while the person is still a non-resident, Canada does not actually tax the pre-arrival gain — it simply resets the cost base to today's value. Accrued gain that built up before residency is never taxed by Canada when the asset is later sold; only post-immigration appreciation is.

The reset applies to property that is not taxable Canadian property (TCP). For TCP — Canadian real estate, Canadian resource property, and shares of certain private Canadian corporations whose value is largely derived from Canadian real property — there is no step-up; the original cost base carries forward. For almost everything else a newcomer typically owns — foreign-listed shares, foreign mutual funds and ETFs, US and other foreign real estate, foreign brokerage and trading accounts, cryptocurrency, business interests held outside Canada, and even art and collectibles — the new cost base is the fair market value on the date residency begins.

A short example shows why the timing is worth getting right. Suppose you hold a foreign stock portfolio that cost $400,000 and is worth $1,000,000 the day you land in Canada. The deemed reacquisition resets your Canadian cost base to $1,000,000. If you sell two years later for $1,150,000, Canada taxes the $150,000 of post-arrival growth — not the $600,000 of pre-arrival appreciation. Without the reset, the entire $750,000 spread would have been on the table. The same logic applies to a long-held home abroad, a private company you built before moving, or crypto bought years earlier.

Why the residency date matters so much

Because the reset is pinned to the moment residency begins, the question of when residency begins is not academic — it sets the valuation date for your entire balance sheet. Canada determines individual tax residency primarily by reference to residential ties, not a bright-line day count. The most significant ties are a dwelling place available for your use, a spouse or common-law partner in Canada, and dependants in Canada. Secondary ties — a Canadian driver's licence, provincial health coverage, bank accounts, club memberships, personal property such as a car — round out the picture. Someone who arrives in mid-January with their family, signs a long-term lease, enrols the children in school, registers for provincial health coverage, and starts work has generally commenced residency on roughly that date. The fair market value of their worldwide assets on that date becomes the cost base going forward.

Where values are clear — publicly traded securities, mainstream crypto — the date can be evidenced from market data after the fact. Where values are not clear — closely held company shares, real estate in a thin market, illiquid private investments, partnership interests — locking in a contemporaneous valuation before the residency date is inexpensive insurance against a CRA challenge years later. Independent appraisals dated as close to the residency date as possible, with documented assumptions, are far easier to defend than a reconstruction prepared under audit pressure a decade on. We treat the valuation file as the backbone of the engagement, because it is the evidence that protects the step-up.

The Canada side: what changes the day you arrive

Beyond the cost-base reset, becoming a resident switches you into Canada's worldwide-income system. From the residency date forward, Canada taxes your global income — employment, business, investment, foreign rental income and foreign pensions — subject to relief under the treaty and the foreign tax credit rules. Your first Canadian return is a part-year return: you report Canadian-source income for the part of the year before you arrived and worldwide income from the date of arrival.

Two reporting points matter immediately for newcomers:

• Foreign-property reporting (Form T1135). Canadian residents who own specified foreign property with a total cost amount over $100,000 CAD at any time in the year must file the T1135 Foreign Income Verification Statement. The threshold is based on cost, not current market value, and it captures foreign securities held in non-registered accounts, foreign real estate held for investment, interests in foreign trusts, and similar holdings. There is a helpful relief for the first year: an individual is not required to file the T1135 for the taxation year in which they first become a Canadian resident. From the second year onward, the obligation is live, and the penalties for missing it are significant — so it should be flagged in year one even though the form itself is not yet due.
• Registered and tax-favoured accounts. Many vehicles that were tax-efficient abroad lose their character in Canada or create new complications. Foreign mutual funds and pooled funds that were straightforward at home can be reclassified and reported differently once you are resident; foreign pension and retirement accounts need to be mapped against the treaty to see whether deferral survives the move. These are decisions to make before the assets cross the border, not after.

The US side: the reset does not touch your US exposure

The Canadian step-up is a Canadian-tax event. It does nothing to your US position. Two situations recur for people arriving from the United States:

US citizens and green-card holders. The United States taxes its citizens on worldwide income regardless of where they live. A US citizen who moves to Canada remains a full US filer indefinitely and must continue to file the Form 1040, report foreign accounts on the FBAR (FinCEN Form 114) and, where thresholds are met, Form 8938. The Canadian cost-base reset gives no corresponding US step-up, so the same asset can have two different cost bases — a higher Canadian one and a lower US one — which is exactly the mismatch that produces double-tax friction without careful foreign-tax-credit and treaty coordination. Our FATCA and FBAR compliance page covers the US reporting layer in detail, and where past US filings have lapsed, the IRS Streamlined Filing Compliance Procedures are often the route back into compliance — see our guide to the Streamlined Filing Compliance Procedures for Canadian US persons.

Green-card holders who surrender the card. A long-term green-card holder who gives up the card may be a "covered expatriate" under the US expatriation rules in IRC section 877A and face a mark-to-market exit tax on unrealized gains. Covered-expatriate status is triggered by any one of three tests: a net-worth test of $2,000,000 or more (a fixed figure that is not indexed), an average-net-income-tax test that for 2026 is $211,000, or a failure to certify five years of US tax compliance. Where the exit tax applies, a gain exclusion — $910,000 for 2026 — shelters the first slice of deemed gain. Timing the surrender of the card, the Canadian residency date, and any pre-move sales against one another is a genuine cross-border optimization, and it is the kind of sequencing that has to be planned before either event happens.

US-situs assets and US estate tax stay with you

For newcomers who are not US citizens but who held US-situs assets before immigrating — US real estate, shares of US corporations, certain US-situs personal property — those assets remain inside the US estate-tax net on death. The Canadian step-up changes nothing about US situs. US estate tax is a separate regime that turns on what the assets are and where they are located, not on the owner's Canadian cost base.

The good news is that the US estate-tax exemption is currently very high. The basic exclusion amount is $13,990,000 for 2025 and, under the One Big Beautiful Bill Act enacted in July 2025, rises to $15,000,000 for 2026, with inflation indexing resuming in 2027. The Canada-US treaty further allows a Canadian-resident decedent to pro-rate a share of the US unified credit against US-situs assets, and provides a marital credit, so many modest estates end up with little or no US estate tax. But the exemption is a creature of US law and is scheduled to keep moving with future legislation, so a number that comfortably covers an estate today may not in a later year. Newcomers with meaningful US holdings should review situs and structure rather than assume the high exemption protects them permanently. Our US estate tax for Canadians page works through the situs rules, the pro-rated credit, and the planning options in depth.

Pre-immigration trusts: a narrower tool than it used to be

Older planning guides describe the "immigration trust" — a non-resident trust funded before arrival that, under a 60-month residency exemption, could hold appreciated assets outside the Canadian tax net for up to five years after the settlor became resident. That exemption was repealed in Canada's 2014 federal budget. Section 94 of the Income Tax Act now generally deems a trust with a Canadian-resident contributor or beneficiary to be resident in Canada, and the income-tax convention interpretation rules confirm that this deeming overrides contrary treaty provisions. The practical result is that the simple pre-immigration trust that produced years of Canadian deferral no longer works the way it once did.

That does not mean trusts are irrelevant — properly constituted foreign trusts can still serve legitimate non-tax purposes and, in specific structures, may fall within the exempt-foreign-trust rules — but the analysis is now technical and fact-specific, and any structure has to be tested against section 94 from the outset. We treat pre-immigration trust planning as advanced work that lives alongside, not instead of, the core cost-base reset, and we coordinate it with our cross-border trusts practice. Our overview of the deeming rules is set out in the blog post on section 94 and cross-border trusts.

Common traps for new Canadian residents

• Selling appreciated assets after the residency date by accident. An asset sold the day before residency keeps its pre-arrival gain entirely outside Canada; sold the day after, its post-arrival growth is Canadian-taxable. Trades placed in the chaos of a move can land on the wrong side of the date.
• Missing the valuation for hard-to-value assets. Public securities can be valued from data later, but private shares, partnership interests, and illiquid real estate cannot. No contemporaneous appraisal means a weak position if the step-up is ever questioned.
• Assuming foreign retirement and savings accounts keep their tax treatment. A vehicle that was tax-sheltered abroad may be taxable or reportable in Canada, and treaty deferral is not automatic — it often depends on an election or on the type of plan.
• Forgetting that the Canadian step-up gives no US step-up. US citizens and green-card holders carry their original US cost base across the border, creating a basis mismatch that has to be managed for foreign tax credits.
• Treating the old immigration-trust strategy as still available. The 60-month exemption is gone; structures built on stale advice can be deemed resident under section 94.
• Overlooking the second-year T1135. The first-year filing relief lulls some newcomers into forgetting the obligation that lands the following year, when foreign holdings over the $100,000 cost threshold must be reported.

How Barrett Tax Law approaches planning for new Canadian residents

Pre-immigration engagements are most effective when they start at least 60 to 90 days before the planned residency date. We begin by cataloguing your worldwide assets and sorting them into what qualifies for the section 128.1 step-up and what does not — separating out taxable Canadian property and US-situs assets that need their own analysis. We lock in contemporaneous valuations for anything hard to value, so the cost base is supported by evidence rather than reconstructed later. Where you are arriving from the United States, we coordinate the Canadian arrival with the US departure side — the section 877A exit tax for departing green-card holders, ongoing US filing for citizens, and the foreign-tax-credit mechanics that keep the two systems from taxing the same gain twice. We map your foreign retirement and investment accounts against the treaty before the move, flag the T1135 and other reporting obligations, and, for high-net-worth families, test any trust structure against section 94 from the start. After residency begins, we prepare the first-year Canadian return in coordination with the final departure-country return.

If you are planning a move to Canada, the most useful time to talk is before you arrive, while the planning levers are still in your hands. Barrett Tax Law's cross-border practice is led by Simone Barrett, who is admitted in Ontario and Florida and works across both tax systems. You can read more on our cross-border tax overview, our departure tax planning page for the mirror-image situation of leaving Canada, and our blog on the cross-border move tax checklist. To discuss your own arrival, you are welcome to book a free consultation.

This page is general information, not legal advice. Cross-border tax planning for new Canadian residents depends on the specific facts of your situation and on the rules of both countries, which change over time. The figures stated here are current as of 2026 and several — including the US estate-tax exclusion and the section 877A exit-tax thresholds — are set by US law and scheduled to change. You should obtain advice tailored to your circumstances before acting.