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 and resident aliens living abroad are required to file annual U.S. income tax returns and report their worldwide income if they meet the minimum filing requirements for their filing status and age. You will have to file both a Canadian income tax return and a United States income tax return. 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.
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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 are required to file a return if you have income from the performance of personal services with the United States. However, under certain circumstances, that income may be exempt from 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 your VISA treats you as a U.S. resident, then your entitlement to treaty benefits will be impacted.
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I am a Canadian citizen who worked in the U.S. for 4 months. Do I have to file an U.S. Income Tax return as well as my Income Tax return in Canada?
That 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 a substantial presence test, which is based on how much time you are in the U.S. over a period of three years. 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.
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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 only in the United States. These Canadian benefits are treated as U.S. social security benefits for U.S. tax purposes. If your total income is above certain limits, a maximum of 85% of your benefits will be subject to U.S. tax. 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 or line 13a and 13b of Form 1040A.
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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.A. 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 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. However, a beneficiary of such a plan 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. To qualify for deferral, the earnings must be attributable to contributions made during periods of Canadian residency. 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 and computation of the earnings deferred as determined in the manner set forth below.
- The name of the trustee of the plan and the plan account number, if any.
- The total amount of earnings the plan derived in the current year.
- The total amount of contributions made to the plan while a resident of Canada (including rollover amounts) as of the end of the taxable year.
- The total amount contributed to the plan (including rollover amounts) in all years.
- The amount of earnings that will be deferred under Article XVIII (7) of the Convention for the current year, which is determined by multiplying the amount in item 2 above by a fraction, the numerator of which is item 3 above and the denominator of which is item 4 above.
- The balance in the plan at the end of the current year.
The election must be made by attaching a statement to the beneficiary's timely filed United States federal income tax return (including any extensions). An election once made for a taxable year cannot be revoked except with the consent of the Commissioner and covers all plans of the beneficiary. Each spouse who is a beneficiary of a plan must file a separate election. Once an election has been made, then, for each taxable year during which the taxpayer holds an investment in a plan, a statement must be attached to the beneficiary's United States federal income tax return that shows:
- the last tax year an election to defer was made under this revenue procedure, and
- the information listed in item 6 above.
Copies of Internal Revenue Bulletins can be obtained by writing to:
Superintendent of Documents, U.S. Government Printing Office
P.O. Box 371954,
Pittsburgh, PA, 15250-7954
or by calling 202-512-1800 (There is a charge for this bulletin), by web site at Superintendent of Documents or by modem (the Federal Bulletin Board) at 202-512-1387. 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 89-45, 1989-2 CB 596, (Aug. 14, 1989) U.S.-Canada Income Tax Treaty: Beneficiary of Canadian registered retirement savings plan
I need to convert Canadian dollars to U.S. dollars. What is the foreign currency exchange rate I should use?
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. When you receive an interest or dividend payment, or dispose of foreign currency, you must immediately translate the foreign currency into U.S. dollars at the current market rate. You should use the exchange rate prevailing when you receive the income. If there is more than one exchange rate, use the one that most properly reflects your income. You can generally get the exchange rates from banks and U.S. Embassies. Other possible sources of exchange rates would be publications, such as the Wall Street Journal.
You can obtain the currency exchange rates at the Department of Commerce or at the Federal Reserve Board web sites.
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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?
Before your can request a refund of taxes withheld, you must first get an Individual Taxpayer Identification Number (ITIN). To request the ITIN, you will have to complete Form W-7, IRS Application for Individual Taxpayer Identification Number.
After an ITIN has been assigned, you will then have to file Form 1040NR, U.S. Nonresident Alien Income Tax Return, with a copy of the statement showing the taxes withheld. Refer to Publication 519, U.S. Tax Guide for Aliens, for information on filing Form 1040NR. The Instructions for Form 1040NR, U.S. Nonresident Alien Income Tax Return, include information on which sections to complete when claiming gambling winnings.
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