Frequently Asked Questions

It's an agreement between the two countries, formally the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital. It sets out which country has the first right to tax different types of income when a person has ties to both. That way the same income isn't fully taxed twice. The treaty also lowers withholding rates on certain payments, settles residency conflicts, and lets the two tax authorities cooperate against evasion.

They use different tests:

• Canada taxes based on residence. Canadian residents report income from all sources worldwide, whatever their citizenship. Non-residents pay Canadian tax only on certain income that comes from Canada.
• The U.S. taxes based on residence and citizenship. A U.S. citizen has to file a U.S. return every year their income is above the filing threshold, even if they've lived abroad for decades.

Usually not, but you still need to file in both countries. Canada taxes your worldwide income because you live there. On your U.S. return you report that same income, then usually claim a foreign tax credit for the Canadian tax you paid. Canadian rates are often higher, so many Americans in Canada owe little or no U.S. tax on their Canadian income. Late or incorrect filings can still cost you through penalties, interest, or lost credits, so accuracy matters.

The CRA looks at your residential ties to Canada.

• Significant ties: a home in Canada, or a spouse, common-law partner, or dependants living in Canada.
• Secondary ties: things like a car, Canadian bank accounts, a provincial driver's licence or health card, and social or professional connections.

If you're unsure, you can ask the CRA for an opinion using Form NR74, Determination of Residency Status (Entering Canada).

Suppose you don't have significant ties to Canada but you spend 183 days or more there in a calendar year. In that case you can be treated as a Canadian resident for the whole year. Deemed residents are taxed on their worldwide income, not only what they earned in Canada. The exception is when the treaty's tie-breaker rules make you a resident of the U.S. instead.

Pay for work you physically do in Canada is generally taxable there. The treaty exempts it if either of these applies:

1. Your pay for the Canadian work is CAD $10,000 or less for the year, or
2. You're in Canada 183 days or fewer in any 12-month period, and your pay isn't paid by a Canadian employer or by a Canadian branch of your employer.

You may still need to file a Canadian return to get back any tax that was withheld.

As a non-resident of Canada, you pay Canadian tax only on Canadian-source income. That includes wages for work done in Canada for a Canadian employer, unless the $10,000 exemption applies. You'd file a Canadian non-resident return. On your U.S. return, you report the wages and claim a credit for the Canadian tax. If your employer withholds more Canadian tax than you're likely to owe, you can ask the CRA to approve a lower withholding amount.

When both countries consider you a resident, the treaty's tie-breaker rules decide. They're applied in this order:

1. Where you have a permanent home available to you
2. If you have one in both, where your personal and economic ties are stronger
3. Where you usually live
4. Your citizenship
5. If it's still unresolved, the two tax authorities decide together

The country you “tie-break” to taxes you as a resident. The other country generally taxes only income earned there, and you get credits to prevent double taxation.

No. The treaty includes a “saving clause” that lets the U.S. keep taxing its citizens as if the treaty didn't exist, with a few exceptions. The tie-breaker mainly helps people the U.S. treats as residents who aren't citizens, such as green card holders. Even for them, claiming treaty non-residence can have serious long-term consequences, so get advice before doing it.

Yes. The U.S. normally withholds 30% on dividends paid to non-residents. Under the treaty, Canadian residents generally pay 15% instead. To get the lower rate, give your broker or the payer a Form W‑8BEN. Canada then gives you a credit for the U.S. tax withheld.

Not always. A Canadian resident who isn't a U.S. citizen may not need to file if their only U.S. income is something like dividends with the correct tax withheld. U.S. wages, rental income, business income, or selling U.S. property usually do require a U.S. return. U.S. citizens and green card holders must file regardless.

Cross-border tax situations rarely fit neatly into one rule. If you're unsure of your residency status or how the treaty applies to you, contact us for a review of your situation, and we'll take care of your U.S. filings.