Key Points of the US – Canada Tax TreatyPosted on February 23 2011 by admin
The U.S. has entered into tax treaties with many countries in an effort to reduce or eliminate double taxation. The US – Canada Income Tax Treaty is of special interest due to the proximity of this neighboring country. This treaty was signed in 1980 and has since been amended by five protocols.
Income from personal services while working in the other country as a nonresident may be exempt from the other country’s income tax if one of the exemptions in the treaty is met. For example, Article XV states that personal services performed by an employee working in the other country is exempt if the total payment is under $10,000 (special rules apply to public entertainers). If earnings exceed $10,000, the income may be exempt if the nonresident is present in the other country for less than 183 days in any 12-month period and the payment is not received by or on behalf of a resident of that country or borne by a permanent establishment in that country.
Income from self-employment, treated as business profits in Article VII, is taxed by the US or Canada if attributable to a permanent establishment in that country. The business profits apply to each country based on what the permanent establishment might be expected to make as a separate entity. Article V of the treaty discusses what it takes to have a permanent establishment. Canada has added a new clause that will need to be reviewed by any US providers engaging in Canada.
Under Article XVIII, pensions and annuities paid to a resident of one country from a source in the nonresident country are taxed by the nonresident country, but are limited to 15% of the gross amount of the pension or the taxable amount if an annuity. The amount included as income in the resident country is limited to the amount that would be income in the other country if the taxpayer was a resident of that other country.
Please remember, if taking advantage of any provisions within a treaty, you must disclose that position on Form 8833 and attach it to your US income tax return.
Jill Helm, CPA (AZ)
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- The IRS Levy or How to Ruin an Evening
- Roth IRA Contributions for a High-Income Couple
- Five Depreciation Tips for Year-End Tax Planning
- Trust Taxation in 2013 – A Potential New Paradigm
- Foreign Gift Reporting Requirements
- Relaxing the “Use it or Lose it” Rule for Flexible Spending Accounts
- Correspondence Audit Selection Process
- Don’t Miss Out on Taking Your 2013 Arizona State Tax Credits!
- The Evolving Affordable Care Act – Health Insurance
- Various Tax Benefits Increase Due to Inflation Adjustments for 2014