Canada Cross-Border Tax Guide (US-Canada)
the cross-border taxation between Canada and the US. The Canada-US Tax Convention (1980) is the most important tax treaty for the Canadian residents with the US connections. The Article IV (tie-breaker rules) determine the residency when the individual is the "dual resident" (the individual with the ties to both Canada and the US). The Article XXIX B (savings clause) preserves the US taxing rights over the US citizens and the US green card holders (the "US taxing rights over the US citizens regardless of the residence"). The Article XVIII (RRSP rules) — the RRSP is treated as the "qualified trust" for the US tax purposes (the "elective deferral" — the US does NOT tax the RRSP income until the withdrawal). The US foreign tax credits (FTCs) — the US citizen living in Canada can claim the US FTCs on the Form 1116 for the Canadian taxes paid. The Canadian foreign tax credits (FTCs) — the Canadian resident can claim the Canadian FTCs on the Form T2209 for the US taxes paid. The cross-border investments — the Canadian resident investing in the US stocks receives the dividends subject to the 15% US withholding tax (reduced from 30% under the US-Canada Treaty). The FIRPTA (the Foreign Investment in Real Property Tax Act) — the Canadian resident selling the US real estate is subject to the 15% withholding tax on the gross sale price (the "FIRPTA withholding"). The cross-border business — the Canadian business with the "US permanent establishment" (the "US PE" — the "US office, the employees, the contracts") is subject to the US corporate tax. The US estate tax — the Canadian resident with the US assets above the US estate tax exemption ($13.61 million for the 2024, indexed) is subject to the US estate tax.
US-Canada Tax Treaty
- Article IV (tie-breaker): The "tie-breaker rules" for the "dual residents" — the individual who is the resident of both Canada and the US under the domestic laws. The tie-breaker considers the "permanent home", the "centre of the vital interests", the "habitual abode", and the "nationality".
- Article XVIII (RRSP): The "elective deferral" for the RRSP — the US treats the RRSP as the "qualified trust" and defers the US tax until the withdrawal. The US citizen must file the Form 8891 (for the pre-2011 years) or the "deemed election" (for the post-2010 years) to claim the treaty benefits.
- Article XXIX B (savings clause): The "savings clause" preserves the US taxing rights over the US citizens and the US green card holders. The US can tax the US citizen on the worldwide income regardless of the Canadian residence.
Cross-Border Investments
- US withholding tax (dividends): The Canadian resident investing in the US stocks receives the dividends subject to the 15% US withholding tax (the "treaty rate" — reduced from the 30% domestic rate). The Canadian resident claims the foreign tax credit (the FTC) for the 15% US withholding tax.
- US interest: The interest from the US bonds and the US bank accounts is generally NOT subject to the US withholding tax (the "US portfolio interest exemption").
- US ETFs: The Canadian resident investing in the US ETFs (the "US-domiciled ETFs" — the SPY, the VOO, the QQQ) is subject to the 15% US withholding tax on the dividends. The Canadian resident can hold the US ETFs in the RRSP (the "RRSP exemption" — the US withholding tax is 0% on the US dividends in the RRSP account).
FIRPTA (US Real Estate)
- FIRPTA withholding: The Canadian resident selling the US real estate is subject to the 15% withholding tax on the gross sale price (the "FIRPTA withholding" — the "Foreign Investment in Real Property Tax Act"). The withholding is remitted to the IRS by the purchaser (the "buyer's obligation").
- FIRPTA exemption: The "FIRPTA exemption" for the property under $300,000 (the "purchaser's use" — the "buyer intends to use the property as the residence"). The exemption is available if the purchase price is $300,000 or less and the buyer intends to occupy the property for at least 50% of the time.
- US estate tax: The Canadian resident with the US assets (the US real estate, the US stocks, the US bank accounts) above the US estate tax exemption ($13.61 million for the 2024, indexed) is subject to the US estate tax at 18% to 40%.
For the US citizens living in Canada and the FATCA/FBAR reporting, see our US Citizens Tax Guide →. For the foreign income reporting and the T1135, see our Foreign Income Guide →.