Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Key Points of the US – Canada Tax Treaty

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)

Comments

  1. Jason says:

    Hi, I have a question about Article XVIII of the treaty. From what I read in 1 and 2 of the article, it appears that double taxation is permitted for pensions. Am I reading that correctly? Here’s a hypothetical situation to help clarify my question: say a Canadian citizen works in the USA (as a resident alien) for a number of years on say a TN visa and then moves back to Canada permanently. Many years later, still a resident of Canada, said person becomes eligible to receive a pension for the years he worked in the USA from the US firm. Is line 1 in article XVIII applied to this hypothetical situation saying that taxes on the pension should be taxed in Canada but not to exceed the taxable amount that he would be taxed if he were currently a resident of the USA? And is line 2 stating further that on top of the tax paid to Canada he should also have to pay tax to the USA? To me, this seems like double taxation which is what the treaty is supposed to prevent. Please help set me straight on this. Many thanks, Jason.

    • admin says:

      Jason –

      Thank you for your interest in our blog and for contacting us, but we do not give free tax advice to non-clients by email, blog comment response, or phone. If you would like to set up an appointment to meet with one of the Henry & Horne tax advisers, please visit our website where you will find the contact information for all three of our offices.

  2. Great article.

  3. Don C says:

    We hired a 1-person Canadian entity to perform consulting services for us. He comes to our US office for several weeks to work, but most of his work is done from Canada. We are his only US client.
    It seems that his services should be exempt from withholding because he’s here less than 183 days.
    Who should complete his W-8BEN, the sole owner who is physically do the work for us or the entity under which he does business?

    • admin says:

      Don,

      We cannot give tax advice: the information below is general in nature and should not be relied upon. You should contact both a US tax advisor and a Canadian tax advisor in order to obtain specific tax advice. As with any tax advice, conclusions are often fact specific and hence giving advice without knowing all the facts would not be in your best interest. We can refer a firm to you and our firm may also be engaged to assist with your US tax filings should you require our services.

      Generally speaking, you would need to review other factors such as the Permanent Establishment Article of the treaty and the Regular and Continuous Test to determine residency and withholding requirements. In order to give specific advise we would need to formalize the arrangement and be engaged to consult with you directly.
      Please let us know if you would like us to send you our engagement letter.

      Jill Helm, CPA

    • jake says:

      I’m a Canadian who recently moved to california to work for a big tech company, on a TN visa. I still have a few freelance clients back in Canada, for whom I might do occasional consulting work. I’m very confused as to where/how I should file that Canadian income, and how it will be taxed.

    • admin says:

      Hi Jake,

      Thank you for your inquiry.

      We cannot provide specific tax advise if we are not formally engaged directly with you.

      For general discussion purposes only, the United States has substantial presence test rules which will subject a taxpayer to United States tax reporting on a worldwide basis should you qualify under this substantial presence test rules and not qualify for the treaty tie breaker exception. It may be that you will have a United States worldwide wide filing requirement along with a Canadian tax filing requirement. Income tax returns will also be required to be filed in the states you are living and/or working.

      Would you like us to send you our general consulting engagement letter so we may obtain more specific facts and assist you with your tax needs? We do urge you to seek a tax professional to address your tax needs as the United States has onerous penalties for failure to file all required tax forms.

      Best regards,

      Debra Callicutt, CPA

  4. Dave says:

    We are Canadians who own a residence in Arizona.

    Due to damage to the home from an accident we had to go down earlier than planned, putting us at 198 days for the year.

    We have no income from the US, but if we stay I understand we would have to file a US tax return.

    Question is would we be liable for any tax on Canadian pension income, or should we leave the US for the 16 days to make up for the overstay?

    • admin says:

      Dave –

      We cannot give tax advice: the information below is general in nature and should not be relied upon. You should contact both a US tax advisor and a Canadian tax advisor in order to obtain specific tax advice. As with any tax advice, conclusions are often fact specific and hence giving advice without knowing all the facts would not be in your best interest. We can refer a firm to you and our firm may also be engaged to assist with your US tax filings should you require our services.

      Generally speaking, if you are considered a U.S. resident for U.S. tax purposes, you may be required to file a U.S. tax return and report your worldwide income. Payments from pension plans are usually taxable depending on the type of pension plan and other factors, and would certainly require disclosure in the USA on multiple forms. Private pension plans are usually taxed as ordinary income in the U.S. and you may be able to claim a foreign tax credit to the extent taxes were also paid in Canada on the same income. CPP and OAS plans are generally treated as US Social Security for qualified taxpayers eligible for treaty with Canada. US Social Security may be taxable and depends on the other income you may have.

      Jill Helm, CPA

    • Dave says:

      Thanks, we talked to the IRS and no exceptions, so we are leaving the US for the time required.

  5. Allie says:

    If we are doing business with Canadian Vendor, do they need to provide a Tax ID from Canada?

    • admin says:

      Allie,

      We cannot give tax advice: the information below is general in nature and should not be relied upon. You should contact both a US tax advisor and a Canadian tax advisor in order to obtain specific tax advice. As with any tax advice, conclusions are often fact specific and hence giving advice without knowing all the facts would not be in your best interest. We can refer a firm to you and our firm may also be engaged to assist with your US tax filings should you require our services.

      Generally speaking, the Canadian vendor would need to provide a W-8BEN form for certain transactions. It depends on the type of transaction you have with the vendor and if treaty benefits are claimed as to whether they will need to apply for a U.S. taxpayer identification number (TIN) or if a 1042 will need to be filed.

      Jill Helm, CPA

  6. Coutrney says:

    I forgot to add that we are US citizens living in Canada and that is why we are filing US tax return. Thanks

  7. Coutrney says:

    My husband is a PhD student in Canada and receives a scholarship that covers our living expenses as well as his tuition and fees. I know that ordinarily the part of the scholarship used for rent, food, etc is taxable but if we are receiving it from a Canadian organization do we have to include it in our US taxable income? And would we be eligible for any of the education deductions or credits? Thanks for any advice you can offer!

    • admin says:

      Hi Courtney –

      Please check your email for a response.

      Sincerely,

      Debra Callicutt, CPA

  8. wayne shih says:

    Dear ladies/gentlemen,

    We are American citizens, and establised some RRSP (Registered Retired Savings Plans) while working in Canada 35 years ago (we were Canadian citizens then). These are similar to our IRA’s in US.

    We are ready to take gradual withdrawls from these plans to supplement our spending in retirement.

    Could you please tell us how do we deal with US IRS for these foreign income? The Canadian side would take a fixed percentages of withholding at time of redeem, depending the amount of withdrawl – from my understanding.

    Thanks a lot.

    Wayne

  9. Josh says:

    I am a Canadian citizen who has been doing work as a consultant in the US for more than 183 days in 2012. My entire income came from this single US company in 2012.

    Do I file in the USA? Do I also file in Canada? Can I credit the US taxes I pay against my Canadian taxes owed?

    Thanks

    • admin says:

      Hi Josh –

      We cannot give tax advice: the information below is general in nature and should not be relied upon. You should contact both a US tax advisor and a Canadian tax advisor in order to obtain specific tax advice. As with any tax advice, conclusions are often fact specific and hence giving advice without knowing all the facts would not be in your best interest. We can refer a firm to you and our firm may also be engaged to assist with your US tax filings should you require our services.

      Absent a treaty tie breaker exception, it appears you will be required to file a U.S. resident required tax returns, including US FBAR Form 90-22.1, along with required Canadian tax return. Canada should provide for a foreign tax credit subject to Canada’s credit limitation. Please visit the irs.gov website if you would like more general information about all the required U.S. tax forms

      Please be advised that with respect to social security or FICA, you should review the totalization agreement.

      We can assist with the US tax issues outlined above.

      Jill Helm, CPA

  10. Felix says:

    John,
    I’m a Canadian working in the US on a full-time basis. What is the Article that applies to claims of tax treaty benefits in my situation? Also, what % rate of withholding can be applied to my salary? Thank you!

  11. Felix says:

    Hello John,
    I am a Canadian citizen working in the US on a full-time basis. Which Article applies to me with regard to income tax treaty benefits? Also, what % rate withholding can I claim on my salary, which exceeds $10,000? Thank you!

    • admin says:

      We cannot give tax advice and the information below is only very general in nature. You should contact both a US tax advisor and a Canadian tax advisor for tax advice. We can refer a firm to you and can be engaged to prepare your US tax return should you require our services.

      Article XV of the treaty discusses income from personal services, and Article IV discusses treaty tie breaker provisions. If you are present in the U.S. for at least 183 days during the year, you may be taxed as a US resident absent any treaty tie breaker exception. Please understand as a U.S. tax resident you pay tax on your worldwide income and must disclose all foreign accounts and investments. As our tax systems have graduated rates and AMT, we would need to review all of your tax information in order to estimate tax or a tax rate specific to your filing. Please contact us if you would like to engage us to work with you further.

      Jill Helm, CPA

  12. John G says:

    I have a canadian citizen, living and working in Canada. Works for a US company with no site in Canada. Rarely in the US. Plans to acquire partial ownership of the US Limited Liability Company. To date he files returns and pays tax only to Canada. Will he have to pay tax to US on company income. How will returns be filed. All earnings will be reported as company passthrough income in the LLC. He will continue to work only in Canada, but all other company operations will be in the US.

    • admin says:

      John:
      We cannot give tax advice and the information below is only very general in nature. You should contact both a US tax advisor and a Canadian tax advisor for tax advice. We can refer a firm to you and can be engaged to prepare your US tax return should you require our services.

      The partner will most likely need to file a U.S. tax return to report the K-1 income. The U.S. partnership will need to file Form 8804/8805 for all foreign partners. We recommend you seek advice regarding reporting LLC activity in Canada, as Canada may not respect the LLC as a pass through entity.

      Jill Helm, CPA

  13. Ali says:

    I have a medical incorporation in Canada. My parents are share holder in my corporation and they are resident of the US. Does the dividend they receive from my company considered qualified dividend and should the pay tax in the US or Canada?

    • admin says:

      Ali:
      We cannot give tax advice and the information below is only very general in nature. You should contact both a US tax advisor and a Canadian tax advisor for tax advice. We can refer a firm to you and can be engaged to prepare your US tax return should you require our services.

      Generally speaking, the dividend could be a qualified dividend if it meets certain requirements, such as a minimum holding period. As residents in the U.S., they will report the income on their U.S. tax return. They should seek professional advice from a Canadian tax advisor to determine if there is any tax return filing requirement in Canada.

      Jill Helm, CPA

  14. JohnH says:

    I am a US citizen and have a US Foreign Service Retirement and Disability System (FSRDS) pension as my only income (no US Social Security). If I retire permanently to Canada (without working there), to whom will I pay taxes? Thank you.

    • admin says:

      John,

      We cannot give tax advice and the information below is only very general in nature. You should contact both a US tax advisor and a Canadian tax advisor for tax advice. The excerpt below is extracted from Publication 525, which can find on the IRS website. As stated, our comments are only general in nature and cannot be relied up for any tax filings.

      As a U.S. citizen, you are required to file a U.S. tax return (if you meet the filing threshold) and continue to report your worldwide income regardless of country of residency; that is unless and until you have renounced your citizenship.

      Pursuant to Publication 525 F

      Foreign service pensions may be excluded from income if certain conditions are met (see below).
      Conditions for exclusion:
      Do not include the disability payments in your income if any of the following conditions apply.
      1. You were entitled to receive a disability payment before September 25, 1975.
      2. You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975.
      3. You receive the disability payments for a combat-related injury.
      4. You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA

      You will need to contact a local Canadian tax firm to determine your Canadian tax obligations, filing requirements and treaty relief, if any. We can refer a firm to you and can be engaged to prepare your US tax return should you require our services.

      Jill Helm, CPA

  15. krazeenyc says:

    Need Help Desperately,

    I participated in a tender offer with a Canadian company. I purchased shares for $103 per share and ended up tendering all of them for the same price (no profit).

    However, apparently based on the terms of the tender offer Canada is claiming that a portion ($87 per share) is a taxable dividend. They are withholding that tax at a 15% rate. So I am paying 15% tax on 0% gain.

    I have no tax liability in the US because the transactions satisfies the 302 test (I Sold all my shares).

    Can I go to the Canadian government and claim a refund somehow how can I be taxed 15% on 0 profits? PLEASE HELP!.

    • krazeenyc says:

      I meant how can I be taxed 15% of almost the entire principal when my profits were 0. thx

    • admin says:

      You may be entitled to a refund if you file a Canadian tax return. You will need to contact a local Canadian tax firm. We can recommend a few in our member group.

      Jill Helm, CPA

  16. Nadia says:

    I am a canadian citizen and I will soon start working for a US company remotely from Canada, offering consulting services in data management.
    They sent me a W-8ECI form to fill. After doing some reading I’m confused about whether I should fill that form, or a W-8BEN, or even an 8833 form!
    Can you help?
    Thank you.

    • admin says:

      Nadia,

      We cannot give tax advice and the information below is only very general in nature. You should contact both a US tax advisor and a Canadian tax advisor for tax advice. We can refer a firm to you and can be engaged to prepare your US tax return should you require our services.

      If all your work is performed outside the US withholding should not be required. Form W-8 ECI is generally used when payments are made to a non-US person that is conducting a trade or business activity within the US. If you are not conducting a trade or business within the US, W-8ECI may not be appropriate.

      A payer will nonetheless need some documentation that you are not a US person. Form W-8BEN can be provided to establish your foreign status. Having provided evidence of your foreign status, a payee may subject your payments to withholding improperly. Communication with payor regarding whether payments to you are considered US source or not is critical to avoid withholding when not required.

      Jill Helm, CPA

  17. Sean Abraham MD says:

    I am a dual citizen of both Canada and the US. If I worked as a physician in both Canada and the US (3 days Canada and 3 days US) who do I owe income taxes to?

    Do I pay taxes to both Uncle Sam and Canada (double taxation?)

    • admin says:

      Hi Sean,

      Please note we cannot give specific tax advice. Information provided in this format is for discussion purposes only and should not be relied upon. If you would like to engage us, please contact us and we can formalize the relationship specifically to your concerns and questions.

      General Information Only:
      The treaty address both earnings received as an employee and earnings received from activities of a self-employed individual.

      Employees:

      Remuneration derived by a resident of a treaty country from employment is taxable only by the country of his residence, unless the services as an employee are performed in the other country, in which case the remuneration may be taxed by the country in which the services are performed. However, if the remuneration doesn’t exceed ten thousand dollars ($10,000) in the currency of the source country (that is, the country where the services are performed) for the calendar year, the remuneration is exempt from taxation at source. Remuneration is also exempt from taxation by the source country if the recipient is present there for not more than an aggregate of 183 days during the calendar year and the remuneration isn’t borne by an employer who is a resident of the source country or by a permanent establishment or a fixed base that the employer has in the source country

      Self-Employed:
      Income derived by a resident of a treaty country from the performance of independent personal services in the other country is taxable by the country of residence. The other country may also tax the income if the individual has or had a fixed base regularly available to him there for performing his activities, but only to the extent the income is attributable to the fixed base. The income is taxable at source even if it is received or accrues after the fixed base has been terminated.

      In your case many factors would be relevant in determining which country would be able to tax the earnings, including days in US, whether a “fixed place of business exists”, employer a US or Canadian company, amount of earnings. Assuming the non-resident country has rights to tax the income, double taxation may be avoidable by use of a foreign tax credit.

      Robert McCanless, CPA

  18. kevin says:

    I am a Canadian citizen and resident and am looking to make an early withdrawal from my SEP-IRA account set up while I was a resident of the US. I understand that there is a 10% tax penalty. Under the tax treaty what is the minimum income tax withholding that should be applied? Is a 15% withholding required?

    • admin says:

      Hi Kevin,
      Thank you for your inquiry. In order to provide any specific tax advise, we would need to formalize our relationship by sending you our consulting engagement letter. We estimate our consulting time regarding this matter would be .5 to one hour. My billing rate is $325.

      Please let us know if you would like to proceed.

      Regards,
      Debra

  19. Dena Watson says:

    Any idea how I report tax on pensions at the reduced rates on a tax return? I can’t figure out how to get software to do it.

  20. Susan says:

    I forgot to say that the consultant would be working under a TN visa sponsored by the US entity.

  21. Susan says:

    If a consultant performs work in the US but not more than 183 days in any 12 months period and does it on the basis of 1042s, so no withholding, does he need to file anything else with the IRS?

    • admin says:

      Susan –
      The foreign consultant should fill out a W-8BEN and if they are claiming reduced withholding by treaty, Form 8233. Generally speaking, if a Canadian citizen is present in the US less than 183 days, that person may be considered a nonresident of the US and may not be subject to US taxes if that person meets all three criteria outlined in Article XV of the treaty. This test is often failed as the expense is often borne either directly or indirectly by a US taxpayer. Please note this is extremely general advise and should not be relied upon. There are often many factors to consider which may not have been raised at this point.

      Jill Helm, CPA

  22. Thomas says:

    Hello,

    I wife is a US perminant resident. She has A LIRA in Canada. Can we transfer this money into a “like” investment into the US with it being taxed.

    • admin says:

      Hi Thomas,

      Generally speaking, you cannot do a direct tax free rollover from a RRSP to a U.S. plan. Please note, we only provide information for discussion purposes only and should not be relied upon.

      Jill Helm, CPA

  23. Steve says:

    I am a US citizen who has lived in Canada for years. I receive a pension from a steel mill in Canada. Can I exclude the pension from tax in the US under Article XVIII or do I have to include it in income and take a foreign tax credit?

    • admin says:

      Payments from Canadian private pensions to US Citizens should generally be tax as ordinary income in the United States. A foreign tax credit could be claimed on the US tax return to the extent taxes were also paid in Canada on the same income.

      Jill Helm, CPA(AZ)

  24. Sam says:

    For Canadian consulting company that closes sales of consulting services in USA and has USA based workers what is the path to go?

    Money received from customers is processed within USA based bank account and payments are made to workers from it. If available any profits should be transferred to the Canadian office that had made the contract sales.

    How is this process of corporate asset to the entity that made the sale taxed.

    Example – 10 USD was made for consulting services, 9 was paid out 1 USD was left over. Upon transfer of this 1 USD to Canadian corporate bank account where is the tax paid and which form is followed and filed where? What is a corporate tax breakdown on 1 USD in this case?

    • Sam says:

      One correction. USA workers are paid from USA account from the USA based sister company. From there any sales commisions should be transfered to Canadian company that closed the sale of service.

    • admin says:

      Sam,

      We cannot provide specific tax advice and recommend you contact a local Canadian tax firm. We can recommend a few in our member group. To give you some general information regarding your U.S. tax filing, the Canadian entity will need to pay U.S. tax on it’s U.S. source income ($1 in your example). Tax rates vary depending on the level and type of income. Tax credit may be available on entity’s Canadian tax filing, which could alleviate duplication of tax.
      If structure involves a US subsidiary of Canadian parent, subsidiary would report US earnings and pay US tax. Distribution up to Canadian parent could be subject to a second level of tax as a dividend.

      Please let us know if we can be of service to you and assist you with properly working through your tax issues.

  25. Heidi says:

    I am a US citizen and the executor of my father’s estate. My father was a Canadian resident at his time of death. His estate owns a piece of income producing property in Canada. Proceeds from this income are distributed to his heirs, all of whom are Canadian citizens and residents of Canada.

    I recently learned that US-Canada Tax Treaty withholding rate on interest income changed from 10% to 0%. CRA now requires no annual information from the Estate.

    However, does the Estate have IRS reporting requirements?

    • admin says:

      Heidi,

      Please note that our blogs and follow up responses are for discussion purposes only and should not be relied upon for tax filings or to obtain relief from any interest or penalties. If your father is a Canadian resident and he has no income or connection to the U.S., there does not seem to be any U.S. filing requirement.

      If your father was a US citizen prior to passing, the estate established upon death could be subject to US tax on the earnings of the property until distributed to heirs. Taxation of heirs will depend on their US status as citizens or not.

      Under fifth protocol of US-Canada income tax treaty, withholding rate for most cross-border interest payments was moved to zero percent.

  26. BILL DRUMGOULD says:

    We are a company located in the United States. We would like to open a bank
    account in a Canadian bank. The bank has told us that we have to register with CRA in order to open the account.

    We do sell to customers in Canada but have no intentions of opening up any offices or branches in Canada. We we be subject to any taxes on a non-interest bearing checking accounts ? Would there be any annual filings required ?

    Thanks,

    Bill

    • admin says:

      Please note that our blogs and follow up responses are for discussion purposes only and should not be relied upon for tax filings or to obtain relief from any interest or penalties. Sales to Canada could trigger a Canada tax filing requirement under certain circumstances. Factors such as where title passes and using company delivery trucks would need to be addressed. Having a non-interest bearing checking account alone would not normally cause a Canada filing requirement, however, be sure to file your Form 90-22.1. Moreover, whilst you may not have created a Permanent Establishment for income tax purposes pursuant to the U.S. Canada Income Tax Treaty, you may still be required to file disclosure forms with Revenue Canada with respect to this activity. In addition to income tax you should also address an GST issues. We cannot provide specific tax advice and recommend you contact a local Canadian tax firm. We can recommend a few in our member group.

      Jill Helm, CPA

  27. Marc Copland says:

    I am a usa resident and taxpayer. I am working as an independent contractor
    in Canada for under ten days in canada
    this year as a performing artist. Am I therefore exempt
    from tax deductions from my fees? Exempt both from
    Canadian and province (Quebec) taxes?

    • admin says:

      We cannot provide specific tax advice and recommend you contact a local Canadian tax firm. We can recommend a few in our member group.

      As some general information for you:
      Article XVI states that U.S. artists and entertainers may be exempt from tax in Canada if gross receipts including reimbursements do not exceed $15,000 during the year and cannot be considered a Canadian resident. However, there are test to be sure you qualify for this article and other factors that may need to be addressed that could change your answer. Lastly in addition to income tax, you must also review the compliance with respect to GST and PST.

      Please let us know if we can be of service to you and assist you with properly working through your tax issues.

      Jill Helm, CPA

    • Keith Knight says:

      Hi Jill,
      What I don’t quite get from publication 901 (04/2012) and specified in Article XVI is tax liability on “reimbursed expenses”. I hire a canadian artist as an independent contractor, I pay him a fee, say $5,000, but his expenses were $1,000, and I reimburse him for those expenses. No profit is made on expenses, so how can they be included in the calculation for his tax liability with regard to the $15K limit? Is the taxable figure really $6,000?? Doesn’t sound logical. The canadian contractor’s expenses became my expenses, wherein he cannot claim any expenses on his Canadian return. I don’t get it.

    • admin says:

      Hi Keith,

      We cannot give tax advice: the information below is general in nature and should not be relied upon. You should contact both a US tax advisor and a Canadian tax advisor in order to obtain specific tax advice. As with any tax advice, conclusions are often fact specific and hence giving advice without knowing all the facts would not be in your best interest. We can refer a firm to you and our firm may also be engaged to assist with your US tax filings should you require our services.

      Generally speaking, reimbursed expenses under an accountable plan may be eligible to be treated as non taxable income by the reimbursed person for U.S. tax purposes. However, although that amount may not be taxable income to the Canadian contractor in the U.S., it is used in the gross receipt calculation for determining the requirement for filing a U.S. tax return.

      Please be sure to review your requirements for filing Forms 1042, 1042-T, and 1042-S as well as obtaining the W-8BEN or 8233.

      Jill Helm, CPA

  28. Guillermo Velarde says:

    I’m Canadian and will move to the USA for work, I’ll rent two properties in Canada, how much tax I need to pay for this rentals? thanks

    • admin says:

      If you will be considered a resident for U.S. tax purposes, you will need to pay U.S. tax on the profit from your rentals. Secondarily, please understand as a U.S. tax resident you pay tax on your worldwide income and must disclose all foreign accounts and investments. As our tax systems have graduated rates and AMT, we would need to review all of your tax information in order to estimate tax or a tax rate specific to your filing. Please contact us if you would like to engage us to work with you further.

      Jill Helm, CPA

  29. Oleg Goldenstein says:

    Last year my wife moved from Canada to the US. We are filing “married filing jointly” and excluding her EARNED income for 2011 on forn 2555. But how we should report to the IRS the Canadian employment insurance benefits that she received during ~10 weeks after moving to the US and that were already taxed by Canada at 25% “non-resident rate”? Should we put this income on 1040 and do we owe any additional tax on it?

    Thanks!

    • admin says:

      Reporting will depend on whether your wife is considered to be a “resident” for US tax purposes. If she is a US “resident” , the general rule requires all sources of income, including Canadian employment insurance benefits, be included on her US tax return. However, she may be able to claim a foreign tax credit for the taxes paid to Canada on the same income.

      Jill Helm, CPA

  30. admin says:

    The client may have a filing requirement; however, we would need to review the K-1 and all the facts before we could advise.

    Thank you,

    Jill Helm, CPA

  31. Tom Abraham says:

    I have a client that is a Canadian resident who received a K-1 from a trust with only long term capital gain income on it. Does the taxpayer have a US 1040 filing obligation?

  32. admin says:

    Information general in nature and cannot be relied upon. Please note, generally speaking qualified taxpayers eligible for treaty with Canada may treat CPP and OAS as US Social Security.

    Note that US SS may be taxable and depends on other income you may have.

    Jill Helm, CPA

  33. Mike Vanderbeck says:

    I am a dual citizen and file tax returns in both countries. My only income is CPP, OAS interest from investments and SS. I understand for my US tax return that my SS is exempt (according to the 1040 worksheet. I have been told that my Canadian pensions are also exempt according to the treaty? I am still not clear on this point as I have included those pensions as income on the 1040 tax return. If that is the case my only reportable income would be interest income? Can you clarify? Thanks

  34. admin says:

    Please note that our blogs and follow up responses are for discussion purposes only and should not be relied upon for tax filings or to obtain relief from any interest or penalties.

    Employment income is considered income from personal services. The US requires all US citizens to pay US income tax on worldwide income. Generally speaking, if a US citizen is present in Canada less than 183 days, that US citizen may be considered a non-resident of Canada and may not subject to Canadian taxes if that person meets all three criteria outlined in Article XV of U.S. Canada Income Tax Treaty. This test is often failed as the expense is often borne either directly or indirectly by a Canadian taxpayer. If a US citizen is subject to Canadian taxes, he or she may be able to use a foreign tax credit so as not to be taxed twice on the same income.

    Jill Helm, CPA

  35. Sandy James says:

    is “income from personal services” the same as employment income? If a US citizen is employed by a US company to do work in Canada and is there (CAD) less than 183 days for the calendar year, does the employee have to pay taxes to Canada?

  36. admin says:

    Generally speaking, there are different tax rates depending on the type of income that is passed through, such as interest, dividends, capital gains, etc. The Treaty provides for reduced rates, but there are many exceptions and reasons for which a lower rate may not apply. We would be happy to provide you with more specific advice if you would like to engage us to work with you further.

    Jill Helm, CPA

  37. Norman Estabrook says:

    My cousins, all of whom are Canadian, are beneficiaries of a deceased US cousin’s life annuity policy. If they were US citizens, they would simply pay US ordinary income tax. However, being Canadian, they should be taxed at a rate defined under US-Canada Tax Treaty. I am unable to find what that rate should be, anywhere? Can you help?