1

Why is it correct to say:

In 1985 we were living in Canada.

and why is it not correct to say

In 1985 we lived in Canada.

Is there any difference? Can you say either way?

2

Not so much difference.

In 1985 we were living in Canada.

indicates a period of time during 1985, and I would expect it to be part of a bigger narrative as to what was going on, such as:

In 1985 we were living in Canada. Our parents were living there so it was very convenient.

and

In 1985 we lived in Canada.

is just a statement of fact. At some point in 1985 you lived there.

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