13.1 Aliens and U.S. Citizens Living Abroad: Canadian & U.S. Tax Issues
I am a U.S. citizen. If I move to Canada to live and work there as a Canadian
permanent resident, do I pay both U.S. and Canadian Taxes?
United States citizens living abroad are required to file annual U.S. income tax
returns and report their worldwide income if they meet the minimum income filing requirements
for their filing status and age. You must contact the Canadian Government to determine
whether you must file a Canadian tax return and pay Canadian taxes. For the United
States income tax return, you will have several options available to you regarding
claiming a foreign tax credit or excluding some or all of your foreign earned income.
References:
I am a Canadian citizen living and working in the U.S. for a U.S. employer
on a visa. Do I need to file both a U.S. tax return and a Canadian tax return?
You must comply with both U.S. and Canadian filing requirements. In the United
States, you generally are required to file a return if you have income from the performance
of personal services within the United States. However, under certain circumstances,
that income may be exempt from payment of U.S. tax pursuant to the U.S.-Canada income
tax treaty. You need to determine what type of visa you have, and how that impacts
your residency status in the United States. If, based on the tax code and your visa
status you are treated as a U.S. resident, then your entitlement to treaty benefits
will be impacted.
References:
I am a Canadian citizen who worked in the U.S. for 4 months. Do I have to
file a U.S. income tax return as well as my income tax return in Canada?
In the United States, you generally are required to file a return if you have income
from the performance of personal services within the US. The type of return to file
would depend upon whether you are a resident of the U.S. for purposes of U.S. tax
law. There are several tests to determine residency, including the substantial presence
test, which is based on how many days you are present in the U.S. over a period of
three years. Refer to Tax Topic 851 for information about which return to file.
If you are simultaneously a U.S. resident under U.S. law and a Canadian resident under
Canadian law, you should consult the U.S.-Canada income tax treaty for rules that
would treat you as a resident of only one country. It is also possible that you may
have to file a dual-status return in the U.S. if you qualify as a U.S. resident for
only part of the year. Refer to Tax Topic 852 for dual-status information.
References:
Are the Canada Pension Plan and Canadian Old Age Security Benefits taxable?
If they are, please tell me where they should be entered on Form 1040.
Benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and
Old Age Security (OAS) program to a U.S. resident are taxable, if at all, only in
the United States. According to the U.S. - Canada income tax treaty, taxation of these
benefits is based on residence. U.S. citizens or green card holders who reside in
Canada are not subject to U.S. tax on this income.
These Canadian benefits are treated as U.S. social security benefits for U.S.
tax purposes. Thus, under section 86 of the Internal Revenue Code, the portion of
the benefits that is taxable will depend on your income and filing status. If your
modified adjusted gross income is above certain limits, a maximum of 85% of your benefits
will be subject to U.S. tax. Refer to Tax Topic 423 for information about determining
the taxable amount of your benefits. Any benefit under the social security legislation
of Canada that would not be subject to Canadian tax if paid to a resident of Canada
is not subject to U.S. tax.
Canadian benefits that are treated as U.S. social security benefits are reported
on line 20a and 20b of Form 1040, U. S. Individual Income Tax Return or line 14a and
14b of Form 1040A.
References:
I am a U.S. citizen who lived in Canada and invested in Registered Retirement
Savings Plans (RRSPs) which are similar to IRAs. Under the Canada - U.S. Tax Treaty,
I am not sure how to treat the income on these investments. Is the income tax deferred
or must it be claimed as earned?
Although Canadian registered retirement savings plans are similar to individual
retirement accounts (IRAs), they do not meet the requirements for qualification as
IRAs under section 408(a) of the Internal Revenue Code. As a result, the earnings
of such a plan are includable currently in the gross income of the beneficiary of
the plan for United States income tax purposes. Whether or not the earnings are distributed.
However, a beneficiary of certain Canadian retirement plans may elect for a tax year
(the current year) to defer United States income tax on certain current-year earnings
of the plan that are not distributed to the beneficiary. An election to defer is made
by the beneficiary attaching to the beneficiary's United States federal income tax
return, a statement that contains for each plan the information specified in Revenue
Procedure 2002-23 , 2002-15 I.R.B. 744, or in any future Revenue Procedure that
supersedes Rev. Proc. 2002-23. Additional filing requirements are detailed in Notice
2003-25, 2003-18 I.R.B. 855 and Notice 2003-57, 2003-34 I.R.B. 397.
You can also download the most recent Internal Revenue Bulletins by visiting our Tax Info For Business section.
References:
- Publication 597, Information on the United States - Canada
Income Tax Treaty
- Revenue Procedure
2002-23, 2002-15 I.R.B. 744 (April 15, 2002), Notice 2003-25, 2003-18
I.R.B. 855 (May 5, 2003), Notice 2003-57, 2003-34 I.R.B 397
I need to convert Canadian currency to U.S. dollars. How does the foreign
currency exchange rate work?
Foreign currency needs to be translated into U.S. dollars to determine the amount
of income (such as income from the sale of goods or services, dividends or interest)
to report on a taxpayer's U.S. return and to determine gain or loss when foreign currency
is disposed of. The proper translation rate depends on the item of income and whether
the taxpayer is a cash or accrual method taxpayer.
. Dividends . Dividends are translated at the spot rate on
the date received.
. Interest . Interest income that is not required
to be accrued (because, for example, the taxpayer is an individual holding a debt
instrument that does not have original issue discount) is translated at the spot rate
on the date received. Interest income that is required to be accrued is translated
at the average rate for each accrual period. When such interest is received the taxpayer
will realize foreign currency gain or loss based on the difference in exchange rates
used to accrue the interest and the spot rate on the date such interest is received.
(A taxpayer may also realize foreign currency gain or loss on the principal when the
instrument is sold or matures.)
. Payable and receivables . An accrual basis taxpayer may
also realize foreign currency gain or loss with respect to a foreign currency denominated
payable or receivable. Generally, foreign currency gain or loss is computed by reference
to the change in exchange rates between the time the payable or receivable arises
and when it is paid or received. For example, if an accrual basis taxpayer sells a
product for L100 when L1= $1 with payment to occur in 90 days and receives payment
of L100 when L1 = $1.20, the taxpayer will realize $20 ($120 - $100) of foreign currency
gain. It should be noted that in certain circumstances, taxpayers may use spot rate
conventions if consistent with the taxpayer method of financial accounting.
You can generally get the exchange rates from banks and U.S. Embassies. Other possible
sources of exchange rate would be publications, such as the Wall Street Journal. If
there is more than one exchange rate, use the one that most properly reflects your
income.
References:
I won money at a Las Vegas casino and my winnings were subject to a 30%
withholding tax. I am a Canadian citizen. How can I get the withholding tax back?
Generally, you must file a tax return after the end of the tax year to claim a
refund of withholding. Gambling winnings by nonresidents of the U.S. are generally
taxed at a flat 30% tax rate. However, under the U.S./Canada Tax Treaty, residents
of Canada may claim gambling losses, but only to the extent of gambling winnings.
You should report both your total gambling winnings and your total gambling losses
on page 4 of Form 1040NR (PDF), U.S. Nonresident
Alien Income Tax Return, on the dotted portion of line 83. If you have net gambling
winnings (after offsetting your total losses against your total winnings), you should
include this net amount on line 83, column (d) of the Form 1040NR. You should also
attach a copy of the Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding,
showing the taxes withheld to your Form 1040NR.
A diary of your losses should be kept for your records.
To file a Form 1040NR you must have a valid identification number. Refer to Tax Topic 857 if you have not already been issued one.
References:
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