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Freetax UsaFreetax usa Publication 597 - Main Content Table of Contents Application of Treaty Personal Services Pensions, Annuities, Social Security, and AlimonyRoth IRAs. Freetax usa Tax-deferred plans. Freetax usa Investment Income From Canadian Sources Other Income Charitable ContributionsQualified charities. Freetax usa Income Tax Credits Competent Authority Assistance How To Get Tax HelpText of Treaty U. Freetax usa S. Freetax usa Taxation Canadian Taxation Application of Treaty The benefits of the income tax treaty are generally provided on the basis of residence for income tax purposes. Freetax usa That is, a person who is recognized as a resident of the United States who has income from Canada, will often pay less income tax to Canada on that income than if no treaty was in effect. Freetax usa Article IV provides definitions of residents of Canada and the United States, and provides specific criteria for applying the treaty in cases where a taxpayer is considered by both countries to be a resident. Freetax usa Saving clause. Freetax usa In most instances, a treaty does not affect the right of a country to tax its own residents (including those who are U. Freetax usa S. Freetax usa citizens) or of the United States to tax its residents or citizens (including U. Freetax usa S. Freetax usa citizens who are residents of the foreign country). Freetax usa This provision is known as the “saving clause. Freetax usa ” For example, an individual who is a U. Freetax usa S. Freetax usa citizen and a resident of Canada may have dividend income from a U. Freetax usa S. Freetax usa corporation. Freetax usa The treaty provides a maximum rate of 15% on dividends received by a resident of Canada from sources in the United States. Freetax usa Even though a resident of Canada, the individual is a U. Freetax usa S. Freetax usa citizen and the saving clause overrides the treaty article that limits the U. Freetax usa S. Freetax usa tax to 15%. Freetax usa Exceptions to the saving clause can be found in Article XXIX, paragraph 3. Freetax usa Treaty-based position. Freetax usa If you take the position that any U. Freetax usa S. Freetax usa tax is overruled or otherwise reduced by a U. Freetax usa S. Freetax usa treaty (a treaty-based position), you generally must disclose that position on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to your return. Freetax usa Personal Services A U. Freetax usa S. Freetax usa citizen or resident who is temporarily present in Canada during the tax year is exempt from Canadian income taxes on pay for services performed, or remittances received from the United States, if the citizen or resident qualifies under one of the treaty exemption provisions set out below. Freetax usa Income from employment (Article XV). Freetax usa Income U. Freetax usa S. Freetax usa residents receive for the performance of dependent personal services in Canada (except as public entertainers) is exempt from Canadian tax if it is not more than $10,000 in Canadian currency for the year. Freetax usa If it is more than $10,000 for the year, it is exempt only if: The residents are present in Canada for no more than 183 days in any 12-month period beginning or ending in the year concerned, and The income is not paid by, or on behalf of, a Canadian resident and is not borne by a permanent establishment in Canada. Freetax usa Whether there is a permanent establishment in Canada is determined by the rules set forth in Article V. Freetax usa Example. Freetax usa You are a U. Freetax usa S. Freetax usa resident employed under an 8-month contract with a Canadian firm to install equipment in their Montreal plant. Freetax usa During the calendar year you were physically present in Canada for 179 days and were paid $16,500 (Canadian) for your services. Freetax usa Although you were in Canada for not more than 183 days during the year, your income is not exempt from Canadian income tax because it was paid by a Canadian resident and was more than $10,000 (Canadian) for the year. Freetax usa Pay received by a U. Freetax usa S. Freetax usa resident for work regularly done in more than one country as an employee on a ship, aircraft, motor vehicle, or train operated by a U. Freetax usa S. Freetax usa resident is exempt from Canadian tax. Freetax usa Income from self-employment (Article VII). Freetax usa Income from services performed (other than those performed as an employee) are taxed in Canada if they are attributable to a permanent establishment in Canada. Freetax usa This income is treated as business profits, and deductions similar to those allowed under U. Freetax usa S. Freetax usa law are allowable. Freetax usa If you carry on (or have carried on) business in both Canada and the United States, the business profits are attributable to each country based on the profits that the permanent establishment might be expected to make if it were a distinct and separate person engaged in the same or similar activities. Freetax usa The business profits attributable to the permanent establishment include only those profits derived from assets used, risks assumed, and activities performed by the permanent establishment. Freetax usa You may be considered to have a permanent establishment if you meet certain conditions. Freetax usa For more information, see Article V (Permanent Establishment) and Article VII (Business Profits). Freetax usa Public entertainers (Article XVI). Freetax usa The provisions under income from employment or income from self-employment do not apply to public entertainers (such as theater, motion picture, radio, or television artistes, musicians, or athletes) from the United States who receive more than $15,000 in gross receipts in Canadian currency, including reimbursed expenses, from their entertainment activities in Canada during the calendar year. Freetax usa However, this provision for public entertainers does not apply (and the other provisions will apply) to athletes participating in team sports in leagues with regularly scheduled games in both the United States and Canada. Freetax usa Compensation paid by the U. Freetax usa S. Freetax usa Government (Article XIX). Freetax usa Wages, salaries, and similar income (other than pensions) paid to a U. Freetax usa S. Freetax usa citizen by the United States or any of its agencies, instrumentalities, or political subdivisions for discharging governmental functions are exempt from Canadian income tax. Freetax usa The exemption does not apply to pay for services performed in connection with any trade or business carried on for profit by the United States, or any of its agencies, instrumentalities, or political subdivisions. Freetax usa Students and apprentices (Article XX). Freetax usa A full-time student, apprentice, or business trainee who is in Canada to study or acquire business experience is exempt from Canadian income tax on remittances received from any source outside Canada for maintenance, education, or training. Freetax usa The recipient must be or must have been a U. Freetax usa S. Freetax usa resident immediately before visiting Canada. Freetax usa An apprentice or business trainee can claim this exemption only for a period of one year from the date the individual first arrived in Canada for the purpose of training. Freetax usa Pensions, Annuities, Social Security, and Alimony Under Article XVIII, pensions and annuities from Canadian sources paid to U. Freetax usa S. Freetax usa residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Freetax usa Canadian pensions and annuities paid to U. Freetax usa S. Freetax usa residents may be taxed by the United States, but the amount of any pension included in income for U. Freetax usa S. Freetax usa tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident. Freetax usa Pensions. Freetax usa A pension includes any payment under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments under a sickness, accident, or disability plan. Freetax usa It includes pensions paid by private employers and the government for services rendered. Freetax usa Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada. Freetax usa Pensions do not include social security benefits. Freetax usa Roth IRAs. Freetax usa A distribution from a Roth IRA is exempt from Canadian tax to the extent it would be exempt from U. Freetax usa S. Freetax usa tax if paid to a U. Freetax usa S. Freetax usa resident. Freetax usa In addition, you may elect to defer any tax in Canada on income accrued within the Roth IRA but not distributed by the Roth IRA. Freetax usa However, you cannot defer tax on any accruals due to contributions made after you become a Canadian resident. Freetax usa Tax-deferred plans. Freetax usa Generally, income that accrues in a Canadian RRSP or RRIF is subject to U. Freetax usa S. Freetax usa tax, even if it is not distributed. Freetax usa However, a U. Freetax usa S. Freetax usa citizen or resident can elect to defer U. Freetax usa S. Freetax usa tax on income from the plan until the income is distributed. Freetax usa Form 8891 is used to make the election. Freetax usa Annuities. Freetax usa An annuity is a stated sum payable periodically at stated times, during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). Freetax usa Annuities do not include: Non-periodic payments, or An annuity the cost of which was deductible for tax purposes. Freetax usa Special rules. Freetax usa Special rules apply to pensions and annuities with respect to: Short-term assignments, Cross-border commuters, and Individuals who participate in a Canadian qualifying plan. Freetax usa Generally, distributions in such cases are deemed to be earned in the country in which the plan is established, without regard to where the services were rendered. Freetax usa Social security benefits. Freetax usa U. Freetax usa S. Freetax usa social security benefits paid to a resident of Canada are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax. Freetax usa Alimony. Freetax usa Alimony and similar amounts (including child support payments) from Canadian sources paid to U. Freetax usa S. Freetax usa residents are exempt from Canadian tax. Freetax usa For purposes of U. Freetax usa S. Freetax usa tax, these amounts are excluded from income to the same extent they would be excluded from income in Canada if the recipient was a Canadian resident. Freetax usa Investment Income From Canadian Sources The treaty provides beneficial treatment for certain items of Canadian source income that result from an investment of capital. Freetax usa Dividends (Article X). Freetax usa For Canadian source dividends received by U. Freetax usa S. Freetax usa residents, the Canadian income tax generally may not be more than 15%. Freetax usa A 5% rate applies to intercorporate dividends paid from a subsidiary to a parent corporation owning at least 10% of the subsidiary's voting stock. Freetax usa However, a 10% rate applies if the payer of the dividend is a nonresident-owned Canadian investment corporation. Freetax usa These rates do not apply if the owner of the dividends carries on, or has carried on, a business in Canada through a permanent establishment and the holding on which the income is paid is effectively connected with that permanent establishment. Freetax usa Interest (Article XI). Freetax usa Generally, Canadian source interest received by U. Freetax usa S. Freetax usa residents is exempt from Canadian income tax. Freetax usa The exemption does not apply if the owner of the interest carries on, or has carried on, a business in Canada through a permanent establishment and the debt on which the income is paid is effectively connected with that permanent establishment. Freetax usa Gains from the sale of property (Article XIII). Freetax usa Generally, gains from the sale of personal property by a U. Freetax usa S. Freetax usa resident having no permanent establishment in Canada are exempt from Canadian income tax. Freetax usa However, the exemption from Canadian tax does not apply to gains realized by U. Freetax usa S. Freetax usa residents on Canadian real property, and on personal property belonging to a permanent establishment in Canada. Freetax usa If the property subject to Canadian tax is a capital asset and was owned by the U. Freetax usa S. Freetax usa resident on September 26, 1980, not as part of the business property of a permanent establishment in Canada, generally the taxable gain is limited to the appreciation after 1984. Freetax usa Royalties (Article XII). Freetax usa The following are exempt from Canadian tax: Copyright royalties and other like payments for the production or reproduction of any literary, dramatic, musical, or artistic work (other than payments for motion pictures and works on film, videotape, or other means of reproduction for use in connection with television, which may be taxed at 10%), Payments for the use of, or the right to use, computer software, Payments for the use of, or the right to use, any patent or any information concerning industrial, commercial, or scientific experience (but not within a rental or franchise agreement), and Payments for broadcasting as agreed to in an exchange of notes between the countries. Freetax usa This rate or exemption does not apply if the owner of the royalties carries on, or has carried on, a business in Canada through a permanent establishment and the right or property on which the income is paid is effectively connected with that permanent establishment. Freetax usa This exemption (or lower rate) does not apply to royalties to explore for or to exploit mineral deposits, timber, and other natural resources. Freetax usa Other Income Generally, Canadian source income that is not specifically mentioned in the treaty, may be taxed by Canada. Freetax usa Gambling losses. Freetax usa Canadian residents may deduct gambling losses in the U. Freetax usa S. Freetax usa against gambling winnings in the U. Freetax usa S. Freetax usa in the same manner as a U. Freetax usa S. Freetax usa resident. Freetax usa Charitable Contributions United States income tax return. Freetax usa Under Article XXI, you may deduct contributions to certain qualified Canadian charitable organizations on your United States income tax return. Freetax usa Besides being subject to the overall limits applicable to all your charitable contributions under U. Freetax usa S. Freetax usa tax law, your charitable contributions to Canadian organizations (other than contributions to a college or university at which you or a member of your family is or was enrolled) are subject to the U. Freetax usa S. Freetax usa percentage limits on charitable contributions, applied to your Canadian source income. Freetax usa If your return does not include gross income from Canadian sources, charitable contributions to Canadian organizations are generally not deductible. Freetax usa Example. Freetax usa You are a U. Freetax usa S. Freetax usa citizen living in Canada. Freetax usa You have both U. Freetax usa S. Freetax usa and Canadian source income. Freetax usa During your tax year, you contribute to Canadian organizations that would qualify as charitable organizations under U. Freetax usa S. Freetax usa tax law if they were U. Freetax usa S. Freetax usa organizations. Freetax usa To figure the maximum amount of the contribution to Canadian organizations that you can deduct on your U. Freetax usa S. Freetax usa income tax return, multiply your adjusted gross income from Canadian sources by the percentage limit that applies to contributions under U. Freetax usa S. Freetax usa income tax law. Freetax usa Then include this amount on your return along with all your domestic charitable contributions, subject to the appropriate percentage limit required for contributions under U. Freetax usa S. Freetax usa income tax law. Freetax usa The appropriate percentage limit for U. Freetax usa S. Freetax usa tax purposes is applied to your total adjusted gross income from all sources. Freetax usa Qualified charities. Freetax usa These Canadian organizations must meet the qualifications that a U. Freetax usa S. Freetax usa charitable organization must meet under U. Freetax usa S. Freetax usa tax law. Freetax usa Usually an organization will notify you if it qualifies. Freetax usa For further information on charitable contributions and the U. Freetax usa S. Freetax usa percentage limits, see Publication 526, Charitable Contributions. Freetax usa Canadian income tax return. Freetax usa Under certain conditions, contributions to qualified U. Freetax usa S. Freetax usa charitable organizations may also be claimed on your Canadian income tax return if you are a Canadian resident. Freetax usa Income Tax Credits The treaty contains a credit provision (Article XXIV) for the elimination of double taxation. Freetax usa In general, the United States and Canada both allow a credit against their income tax for the income tax paid to the other country on income from sources in that other country. Freetax usa For detailed discussions of the U. Freetax usa S. Freetax usa income tax treatment of tax paid to foreign countries, see Publication 514, Foreign Tax Credit for Individuals. Freetax usa See paragraphs (4) and (5) of Article XXIV for certain provisions that affect the computation of the credit allowed by the United States for Canadian income taxes paid by U. Freetax usa S. Freetax usa citizens residing in Canada. Freetax usa Competent Authority Assistance Under Article XXVI, a U. Freetax usa S. Freetax usa citizen or resident may request assistance from the U. Freetax usa S. Freetax usa competent authority when the actions of Canada, the United States, or both, potentially result in double taxation or taxation contrary to the treaty. Freetax usa The U. Freetax usa S. Freetax usa competent authority may then consult with the Canadian competent authority to determine if the double taxation or denial of treaty benefits in question can be avoided. Freetax usa If the competent authorities are not able to reach agreement in a case, binding arbitration proceedings may apply. Freetax usa It is important that your request for competent authority assistance be made as soon as you have been notified by either Canada or the United States of proposed adjustments that would result in denial of treaty benefits or in double taxation. Freetax usa This is so that implementation of any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. Freetax usa For information that you should include with your request for competent authority assistance, see Revenue Procedure 2006-54, 2006-49 IRB 1035, available at www. Freetax usa irs. Freetax usa gov/irb/2006-49_IRB/ar13. Freetax usa html. Freetax usa The request should be addressed to: Deputy Commissioner (International) Large Business and International Division Attn: Office of Tax Treaty Internal Revenue Service 1111 Constitution Ave. Freetax usa , NW Routing: MA3-322A Washington, D. Freetax usa C. Freetax usa 20024 In addition to a timely request for assistance, you should take the following measures: File a timely protective claim for credit or refund of U. Freetax usa S. Freetax usa taxes on Form 1040X, Form 1120X, or amended Form 1041, whichever is appropriate. Freetax usa This will, among other things, give you the benefit of a foreign tax credit in case you do not qualify for the treaty benefit in question. Freetax usa For figuring this credit, attach either Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), or Form 1118, Foreign Tax Credit — Corporations, as appropriate. Freetax usa Attach your protective claim to your request for competent authority assistance. Freetax usa Take appropriate action under Canadian procedures to avoid the lapse or termination of your right of appeal under Canadian income tax law. Freetax usa How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS and the Canada Revenue Agency in several ways. Freetax usa Text of Treaty You can get the text of the U. Freetax usa S. Freetax usa —Canada income tax treaty from: Superintendent of Documents U. Freetax usa S. Freetax usa Government Printing Office P. Freetax usa O. Freetax usa Box 371954 Pittsburgh, PA 15250-7954 The treaty can also be found on the Internet at IRS. Freetax usa gov. Freetax usa U. Freetax usa S. Freetax usa Taxation During the filing season, the IRS conducts a taxpayer assistance program in Canada. Freetax usa To find out if IRS personnel will be in your area, you should contact the consular office at the nearest U. Freetax usa S. Freetax usa Embassy or consulate. Freetax usa Mail. Freetax usa For answers to technical or account questions, you can write to: Internal Revenue Service International Section Philadelphia, PA 19255-0525 Phone. Freetax usa You can call the IRS for help at (267) 941-1000 (not a toll-free call). Freetax usa Canadian Taxation You can get information on Canadian taxation from the Canada Revenue Agency. Freetax usa The International Tax Services Office can be contacted on 1-800-267-5177 (from anywhere in Canada and the U. Freetax usa S. Freetax usa ) or on the Internet at www. Freetax usa cra-arc. Freetax usa gc. Freetax usa ca. Freetax usa Prev Up Next Home More Online Publications
Identify and Stop Consumer Fraud
Look for Warning Signs
Look for these warning signs to avoid fraud:
- Someone you don't know asks you to send money or money orders to claim a prize, lottery, credit card, loan, or other valuable offer.
- Someone you don't know offers you the chance to receive a credit card, loan, prize, lottery, or other valuable item, but asks you for personal data to claim it.
- An unknown caller claiming to be a lawyer or in law enforcement offers to help you get your money back (for a fee).
- The deal is only good "for today" or a short period of time.
- The seller offers "free gifts" in return for a minimum effort or a fee.
- A "repair person" suddenly finds a dangerous defect in your car or home.
- You are given little or no time to read a contract.
- A sale item is suddenly unavailable but a "much better item" is available for slightly more money.
- Someone is trying to scare you into purchasing credit protection plans.
- The solicitation looks like a government document and suggests contest winnings or unclaimed assets are yours for a small fee. (The government doesn't solicit money from citizens.)
- You are asked for your bank account or credit card number.
Quick Tips for Avoiding Fraud
- Don't give out personal information. Be suspicious of anyone you don't know who asks for your Social Security number, credit card and bank account details, date of birth, etc.
- Don't be intimidated. Be suspicious of calls or e-mails that want you to provide or verify personal information immediately. Tell them you're not interested and hang up or don't reply to the e-mail.
- Monitor your accounts. Review bank and credit card statements carefully. Report unauthorized transactions to your financial institution immediately.
- Use a shredder. Tear or shred credit offers you receive in the mail, bank statements, insurance forms and other papers with personal information.
Be on the lookout for these common scams:
- Fake Check Scams- You discover the check is worthless after you've deposited it and wired money back to the crook.
- Sweetheart Swindles- Criminals befriend you in online chat rooms or dating sites, then request money as a favor or for accident or travel expenses.
- Auctions- Beware of fraudulent sellers and bogus merchandise.
- Lotteries- Don't fall for foreign lotteries; they're illegal to play and may be a scam.
- Advance Fee Loans and Credit- It's illegal for telemarketers to charge a fee in advance for help getting a loan.