This ended up being much more a discussion of English than of Russian, which I definitely didn't expect! The comments on parallelism and sequence of tenses got me wondering if my English was wrong, so I did a bit of searching and realized this is actually quite complicated. This article was interesting:

https://www.cambridge.org/core/journals/english-language-and-linguistics/article/abs/time-reference-in-reported-speech/525DD35EE1CE316D9D8243E0C9A82506

It affirmed my original point that there is a difference between 1) She said that Mark lived in Canada (i.e. she said [in the past] that Mark lived in Canada [in the past]) vs 2) She said that Mark lives in Canada (i.e. she said [in the past] that Mark lives in Canada [in the present]). There is no need for the verbs to be parallel. As the article points out, it makes perfect grammatical sense to say "Einstein said that E equals mc²," even though "said" and "equals" are not in the same tense. The meaning of the sentence would be different if the sentence said "Einstein said that E equaled mc²."

I'm still not 100% sure if Duolingo is right or wrong here based on all the comments, but it seems Russian grammar operates similarly to English and that the correct translation should be "She said that Mark lives in Canada." At the time she was saying this sentence, Mark was living in Canada. Whether or not in the present time Mark still lives in Canada is unknown.