US Taxes and the Canadian Investor

US taxes. Canada and America share the largest unguarded border between two nations in the world and both countries enjoy the virtually

Cross border taxation will be of increasing importance for those Canadians who seek to invest or reside in the US.

Canada and America share the largest unguarded border between two nations in the world and both countries enjoy the virtually,unrestricted free flow of goods, services and personnel from one country to the other. It is not uncommon, therefore to have companies and individuals who earn income in both countries. When this occurs, it leaves individuals and companies vulnerable to double taxation.

An aging Canadian population will likely result in more Canadians moving to the warmer states to retire. Thus Cross border taxation will be very important in the coming years. Issues surrounding retirement plans such as RRSP's and 401K plans will be of increasing concern to retirees.


The US tax system is very similar to the Canadian tax system, but with some fundamental differences.

The Canadian tax system is based on residency, whether actual or deemed. A variety of factors are used to determine residency, including closeness of personal and economic ties. If an individual sojourns through Canada for a period exceeding 183 days in a year, then they could be "deemed" to be resident for tax purposes. Residents are subject to taxation on their world wide income regardless of the source of income. Non residents are taxed only on income earned in Canada.

The US taxes system is based on citizenship and residency. US citizens are taxed on worldwide income regardless of country of residence. Non-US nationals are taxed on worldwide income regardless of geographical source of income. Non residents are taxed only on income earned in the US. Residency for income tax purposes is determined by immigration status and by a physical presence test.

Tax treaties between the two countries help to minimize the effect of double taxation. Under the treaty, tie breaker rules are used to make the taxpayer a resident of only one country for tax purposes. The following factors are used in order to determine residency status.

  1. Permanent home
  2. Place with closer personal and economic ties
  3. Place where they habituate more often
  4. Citizenship
  5. Competent authorities

Each factor supersedes the factors following. Where advantageous, the tax payer can elect to pay taxes in one jurisdiction over the other.

US taxes and the IRS?

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