Artificial intelligence is becoming a go-to resource for obtaining answers to quick questions and research. ChatGPT may be a great resource for preparing templates, getting a basic understanding of issues, meal planning, or even researching a cross-border trip.

However, when it comes to cross-border tax planning between Canada and the United States, generic AI tools have proven they do not understand the laws and fall short in providing accurate information you can rely on.

When you're dealing with two tax jurisdictions, tax treaties, multiple filing deadlines, foreign reporting rules, and the risk of double taxation, predictive text models cannot always provide clear guidance, and often contradict their own conclusions when questioned.

We've tested the most common AI models extensively. Here are six critical risks Canadians face when relying on AI for cross-border tax advice, and why working with a cross-border tax specialist remains essential for navigating these complex situations.

1. AI Frequently Hallucinates or Invents Cross-Border Tax Rules

AI tax tools are trained on massive amounts of online text, much of which can be outdated, oversimplified, written for a U.S. audience, or simply incorrect. This leads to answers that sound legitimate but contain serious errors.

Clients routinely send us summaries from their own AI-conducted research on Canadian and cross-border tax planning matters. Common problems we see include:

• Misquoted treaty articles between Canada and the U.S.
• Confusion between Canadian and U.S. tax forms
• Outdated capital gains inclusion rates
• Canadian residency rules confused with U.S. "substantial presence" tests
• Recommended elections that must be filed on timely returns, without mentioning that late filing removes the option entirely

When AI models don't know something, they don't say: "I'm not sure.".

They fill in the gaps with often inaccurate and misleading information, presented with complete confidence.

2. AI Creates Contradictions That Lead to Compliance Risk

One of the most common examples we encounter involves the T1135 "Foreign Income Verification Statement," which many Canadians must file if they hold more than $100,000 in certain foreign assets.

What AI often says (incorrectly):‍

"If your U.S. stocks are held in a Canadian brokerage account, you don't need to file T1135."

What the CRA actually requires:

‍You report the foreign property based on what it is, not where the account is located.

This means:

• U.S. stocks are still foreign property
• U.S. ETFs are still foreign property
• Holding these in a Canadian investment account does not exempt you from filing

Note: Cryptocurrency holdings are an exception. The situs of digital assets doesn't follow the same rules as traditional securities and requires a separate analysis. Whether crypto triggers T1135 reporting depends on factors beyond where your account is held. If you hold significant cryptocurrency positions, consult a specialist to determine your reporting obligations.

AI pulls from multiple online sources and sometimes changes its answer depending on how the question is worded. This inconsistency creates serious compliance risk. Missing a T1135 form can trigger penalties and give the CRA additional years to reassess your tax return.

If you've discovered past filing gaps, the Voluntary Disclosures Program (VDP) may offer a path to correct your compliance history and reduce penalties.

3. AI Ignores Canadian AMT Unless Specifically Prompted

AI tax models almost never consider Alternative Minimum Tax (AMT) unless you specifically ask—and even then, they often use outdated rates or perform calculations incorrectly.

AMT matters in situations involving:

• Large capital gains realizations
• Exercising stock options
• Donating publicly traded securities
• Moving from Canada to the U.S. (departure tax year)
• Very high-income years

Here's what typically happens when you ask AI for a tax estimate:

Initial response: AI provides a clean tax calculation but leaves out AMT entirely. The numbers look precise and authoritative, but AMT isn't factored into the analysis. You might rely on these estimates to set money aside—then face a surprise during tax season when your actual liability is thousands more than expected.

When you prompt "include AMT": The numbers change dramatically. Sometimes the total tax doubles, which also isn't correct.

AMT is complex, applies irregularly, and the rules changed significantly in 2024. AI models trained on outdated or mixed data simply don't know when AMT applies. It differs by province, and different income sources trigger AMT at different thresholds.

AI never warns you about any of this. It presents incomplete numbers as if they're final.

4. AI Doesn't Understand How Cross-Border Tax Systems Interact

Cross-border tax planning is fundamentally about how two tax systems connect—not just how each system works on its own.

AI often fails to account for:

• How Canadian AMT interacts with U.S. foreign tax credits
• Whether a foreign tax credit is allowed on the Canadian side
• How residency status changes tax exposure
• Which country has the primary right to tax specific types of income
• How state tax rules complicate the picture (for example, California taxes capital gains as ordinary income, which can significantly impact Canadians selling California real estate)

Even a small misunderstanding of the Canada-U.S. tax treaty or a provincial/state rule can result in double taxation, exactly what cross-border tax advisors are trained to help you avoid.

The real danger isn't just that AI gets the answer wrong. It's that it presents incorrect answers with total confidence, giving no indication that professional verification is needed.

5. AI Overlooks Critical Filing Elections and Deadlines

Many cross-border tax strategies depend on elections that can only be made once, must be filed with your first return after a triggering event, and cannot be corrected later without a costly IRS or CRA ruling.

Examples include:

• Canada-U.S. tax treaty elections
• Roth IRA rollover protection filings
• Stock option or bonus timing elections
• Inbound cost-basis step-ups when moving to Canada

AI rarely mentions that deadlines exist, or that missing them can make an opportunity permanently unavailable. In cross-border planning, timing is often the entire strategy, and getting it wrong can be irreversible.

6. AI Cannot Assess Facts That Determine Tax Treatment

Canadian and cross-border tax outcomes often depend on factual determinations that require professional judgment. AI simply cannot evaluate:

• Where someone actually lives for tax residency purposes
• Residential ties to Canada that affect tax status
• Beneficial ownership of assets and entities
• Whether an individual is employed or self-employed in cross-border situations
• Control of a corporation for Canadian-Controlled Private Corporation (CCPC) purposes
• Whether a trust beneficiary has a vested or discretionary interest

These fact-dependent determinations are central to correct tax treatment. AI models cannot replace experienced advisors in these situations. In our testing, it often takes hours of continual questioning, pushing back, and challenging the models to arrive at a nearly correct summary, and even then, critical nuances are missed.

The Bottom Line: AI Helps With Information, Not Decisions

AI tools are excellent at summarizing text, defining terms, and collecting background information. But AI is not a tax advisor.

It doesn't understand context. It doesn't verify accuracy. It doesn't warn you when making assumptions. Newer models sometimes refuse to provide answers entirely when the topic is complex enough.

In cross-border planning, even small mistakes can lead to:

• Unnecessary penalties
• Double taxation
• Missed elections
• Denied foreign tax credits
• Incorrect tax residency determinations
• Inflated tax bills
• Irreversible planning errors

The T1135 contradiction and AMT blind spot are two of the clearest examples of why relying on AI alone is risky. AI can be a useful starting point for research, but final planning always requires expert review.

When to Seek Professional Cross-Border Tax Advice

If any of these situations apply to you, it's important to work with a cross-border tax specialist rather than relying on AI tools:

• You hold U.S. real estate, investments, or foreign retirement plans
• You're planning a move across the Canada-U.S. border
• You've had a year with unusually high income or capital gains
• You have family members or beneficiaries living in another country
• You're a Canadian holding cryptocurrency or other foreign digital assets on international platforms
• You're a business owner with cross-border operations requiring fractional CFO support

Our team at Forbes Andersen has extensive experience helping Toronto and GTA clients navigate Canada-U.S. tax complexity. We understand the treaty, the forms, the elections, and most importantly, how the two systems interact.

Ready to discuss your cross-border tax situation?

‍Contact us for a free consultation and get guidance you can rely on.

Lori Keightley is a Partner at UHY Forbes Andersen LLP, specializing in cross-border tax planning for individuals and businesses navigating Canada-U.S. tax obligations.