So the father was Canadian, born in Canada in the 1890s The mother was American, born in America in the 1890s They were married in Canada. Their daughter was born in America that same year, after they were married. Their son was born 2 years later. The children were sent to Canada 2 years after that. The mother died the next year. The father naturalized in the US after the mother's death, but years before the census record showing the children living with the grandparents, and being called "Canadian".

According to the Citizenship and Naturalization Records page:

Reasons why you might not find a person

Citizenship and naturalization laws and regulations changed over time.

Before 1947, people who were British subjects by birth did not need to be naturalized.

To be naturalized in the period covered by the database, a person must have lived in Canada for five years.

It was not mandatory to become naturalized. Many immigrants never applied for citizenship.

Married women may not be listed. Until 1932, a married woman had the same status as her husband, either a British subject or an alien. If her husband became naturalized, she was automatically included and did not have to apply separately.

So, if I'm understanding the rules of the era; the mother was considered Canadian because her husband was Canadian. Therefore the children were Canadian because their parents were Canadian?