Should I Dispose of Investments Before Becoming a U.S. Tax Resident?

For non-registered investments, the departure decision is partly made for you: Canada deems most portfolio securities disposed of at fair market value the day you emigrate, taxing the accrued gain whether or not you actually sell. What remains in your hands is the U.S. side of each holding's future.

Two forces dominate: the PFIC regime, which punishes U.S. residents holding Canadian mutual funds and ETFs; and the basis question — ensuring the gain Canada just taxed is not taxed a second time when you eventually sell as a U.S. resident.

Canadian mutual funds and Canadian-listed ETFs are, for U.S. tax purposes, passive foreign investment companies. PFIC treatment means punitive tax rates on distributions and gains, interest charges, and Form 8621 reporting for every fund, every year. The standard pre-move play is to dispose of these funds — or convert to U.S.-listed equivalents or direct securities — before U.S. residency begins, when the departure tax was going to crystallize the gain regardless.

For holdings you keep, the double-tax risk is real: the U.S. does not automatically recognize Canada's deemed disposition, so your U.S. cost basis would remain the old, lower figure. The Canada–U.S. treaty answers this with a coordinating election — allowing an individual subject to Canada's departure tax to elect a deemed sale for U.S. purposes as well, aligning both countries at the same date and value. The election has conditions and paperwork, and it interacts with your residency start date; it is precisely the sort of item to resolve with cross-border advice before the move, not at the first U.S. filing deadline.