Question on taxes on US income for a Canadian resident?

Question

I have a question about the US/Canada tax treaty from someone that knows something about US/Canadian taxes.

I tried to read the treaty and as a mere engineer that designs complex electronic systems and I cannot figure it out.

I am a Canadian citizen, residing in Canada but I lived in the USA (legally) from 2001 to 2010 and have US income from investments and now get a partial social security benefit. As well I have an IRA and will have to take minimum required distributions starting in 2022. I need to know the correct way to deal with my US income for tax purposes.

I have no intention to avoid taxes. Taxes are the price of civilization. I am also familiar with the official aank Of Canada exchange rate for each year for tax purposes.

Here are the three ways I have deduced.

1. File a US 1040NR to the US government and pay US taxes on US income and say nothing to the Canadian tax people.

2. Declare the entire US income on my Canadian tax return and file nothing in the USA as I am resident in Canada.

3. File a US 1040NR and pay the US taxes AND declare the income on my Canadian tax return and pay Canadian taxes on it, deducting the taxes paid to the US government as a tax credit.

I have seen things it the treaty that imply all of these in one place or another but nothing that exactly describes my situation.

I can be emailed through Yahoo Answers if more information is needed.

Any help would be appreciated.

D J · Answer

You need an account who is knowledgeable with this type of tax problem.

Anonymous · Answer

Note #1.  The IRA is considered work related and goes on page 1 of the 1040NR, allows you to subtract the personal exemption and is subject to graduated tax rates.

Note #2.  Investment income depends on the type of investment.  The tax rate could be 0%, it could be 30% or something else.  This is classified as FDAP income and goes on a later page.

Note #3.  The social security benefit is taxed at 30% of 85% and if done correctly the 25.5% has already been withheld.  Since you will be filing for other reasons, you include this income.

When interviewing preparers, ask them about each type of income.  If they look flustered, keep looking.

Note, the exchange rate is not a single yearly rate--it's the rate at the time you got the money.

? · Answer

Ask a Canadian chartered accountant or a US CPA, particularly one well-versed in international issues. The price will be steep but it's worth it to get real opinions from people who know the law on these issues. Relying on a bunch of internet strangers to offer advice on a highly specialized issue like this is probably going to do more harm than good, especially since "people on Yahoo told me" is not going to prevent the IRS from hitting you with penalties for failure to report your income.

Moreover, please remember that people like me spent years in school (and in some cases incurred a mortgage worth of student debt) and worked many more years putting in the equivalent of two full-time jobs to cut their teeth in this industry and learn how things work. I doubt you've given away your services for free; it's inconsiderate to ask us to do the same.

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Question on taxes on US income for a Canadian resident?

3 Answers