Publication 597 (Rev. October 2015)

Future Developments

For the latest information about developments

related to Pub. 597, such as legislation enacted

after it was published, go to www.irs.gov/

pub597.

What's New

Under Revenue Procedure 2014-55, 2014-44

I.R.B. 753, available at www.irs.gov/irb/

2014-44_IRB/ar10.html, there are new

procedures for electing to defer U.S. tax on

undistributed income from certain Canadian

retirement plans (including RRSPs and RRIFs).

Form 8891 is no longer required to make the

election or to report distributions or earnings on

undistributed income. Revenue Procedure

2014-55 also provides guidance concerning

information reporting with respect to interests in

certain Canadian retirement plans. For more

information, see Tax-deferred plans under

Pensions, Annuities, Social Security, and

Alimony, later.

Introduction

This publication provides information on the in-

come tax treaty between the United States and

Canada. It discusses a number of treaty provi-

sions that most often apply to U.S. citizens or

residents who may be liable for Canadian tax.

Treaty provisions are generally reciprocal

(the same rules apply to both treaty countries).

Therefore, Canadian residents who receive in-

come from the United States may also refer to

this publication to see if a treaty provision af-

fects their U.S. tax liability.

This publication does not deal with

Canadian income tax laws; nor does it

provide Canada's interpretation of

treaty articles, definitions, or specific terms not

defined in the treaty itself. For questions regard-

ing Canadian taxation, contact the Canada

Revenue Agency at www.cra-arc.gc.ca.

The United States–Canada income tax

treaty was signed on September 26, 1980. It

has been amended by five protocols, the most

recent of which generally became effective Jan-

uary 1, 2009. In this publication, the term “arti-

cle” refers to the particular article of the treaty,

as amended.

Application of Treaty

The benefits of the income tax treaty are gener-

ally provided on the basis of residence for in-

come tax purposes. That is, a person who is

recognized as a resident of the United States

under the treaty, who claims the benefit of the

treaty, and who has income from Canada, will

often pay less income tax to Canada on that in-

come than if no treaty was in effect. Article IV

provides definitions of residents of Canada and

the United States, and provides specific criteria

for determining your residence (a tie-breaker

CAUTION

Department

of the

Treasury

Internal

Revenue

Service

Publication 597

(Rev. October 2015)

Cat. No. 46597M

Information on

the United

States–Canada

Income Tax

Treaty

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rule) if both countries consider you to be a resi-

dent under their domestic tax laws (a dual-resi-

dent taxpayer).

Dual-resident taxpayers who are Canadian

residents under a tie-breaker rule. If you

are a dual-resident taxpayer because you have

a U.S. green card but you determine under the

tie-breaker rule that you are a resident of Can-

ada, you may claim treaty benefits and compute

your U.S. income tax as a nonresident alien.

But you must file a U.S. income tax return by

the due date (including extensions) using Form

1040NR or Form 1040NR-EZ. You must also

attach a fully completed Form 8833,

Treaty-Based Return Position Disclosure Under

Section 6114 or 7701(b). For more information,

see Pub. 519, U.S. Tax Guide for Aliens.

Dual-resident taxpayers who are not Cana-

dian residents under a tie-breaker rule. If

you are a dual resident of the United States and

a third country and derive income from Canada,

you can only claim treaty benefits from Canada

if you have a substantial presence, permanent

home or habitual abode in the United States,

and your personal and economic relations are

closer to the United States than to any third

state.

If you are a U.S. citizen or green card holder

living in Canada, you still have to file a Form

1040 and report your worldwide income be-

cause of the “saving clause” in Article XXIX(2),

which allows the United States to tax its citizens

and residents as if the treaty had not entered

into effect. There are limited exceptions to the

saving clause, which means certain types of in-

come may be exempt from tax in the United

States. Exceptions to the saving clause can be

found in Article XXIX, paragraph 3.

Special foreign tax credit rules for U.S. citi-

zens residing in Canada.

If you are a U.S.

citizen and a resident of Canada, special for-

eign tax credit rules may apply to relieve double

tax on income from the United States. See Arti-

cle XXIV(3), (4) and (5). For more information

about foreign tax credit rules generally, see

In-

come Tax Credits, later.

Example. As a U.S. citizen residing in Can-

ada, you have dividend income from a U.S. cor-

poration. Canada will tax you on your worldwide

income, including your U.S. dividend income.

As a resident of Canada under the treaty you

can claim a reduced withholding rate from the

United States on the dividend income (15%)

rather than 30%, and Canada generally allows

you to deduct the U.S. withholding tax from your

Canadian tax on that income. However, you still

need to file a U.S. income tax return and report

your worldwide income, and pay any residual

tax to the United States, to the extent it exceeds

the U.S. tax withheld and the Canadian tax paid

with respect to the income.

Income from self-employment (Article VII).

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. This income is

treated as business profits, and taxable on a net

basis in Canada in accordance with Article

VII(3).

If you carry on (or have carried on) business

in Canada through a permanent establishment,

Canada may tax the profits the permanent es-

tablishment might be expected to make if it

were a distinct and separate person. The busi-

ness profits attributable to the permanent estab-

lishment include only those profits derived from

assets used, risks assumed, and activities per-

formed by the permanent establishment.

You may be considered to have a perma-

nent establishment if you meet certain condi-

tions. For more information, see Article V (Per-

manent Establishment) and Article VII

(Business Profits).

Services permanent establishment (Article

V Paragraph 9). Under paragraph 9 of Article

V, if you, or your enterprise, provide services in

Canada, you may be treated as providing them

through a permanent establishment in Canada

even if you do not have a fixed base in Canada

from which you operate. This rule applies, how-

ever, only if:

1. You are present in Canada for more than

183 days in a 12-month period, and, dur-

ing that period or periods, more than 50

percent of your gross active business rev-

enues consist of income derived from your

services performed in Canada; or

2. Your enterprise provides services in Can-

ada for an aggregate of 183 days or more

in any 12-month period with respect to the

same or connected project for customers

who are either residents of Canada or who

maintain a permanent establishment in

Canada and your services are provided in

respect of that permanent establishment.

This rule applies to tax years beginning af-

ter January 1, 2010.

Personal Services

A U.S. citizen or resident who is temporarily

present in Canada during the tax year is exempt

from Canadian income taxes on pay for serv-

ices performed, or remittances received from

the United States, if the citizen or resident quali-

fies under one of the treaty exemption provi-

sions set out below.

Income from employment (Article XV). In-

come U.S. residents receive for the perform-

ance 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. If it is more than

$10,000 for the year, it is exempt only if:

1. 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

2. The income is not paid by, or on behalf of,

a Canadian resident and is not borne by a

permanent establishment in Canada.

Whether there is a permanent estab-

lishment in Canada is determined by

the rules set forth in Article V.

TIP

Example.

You are a U.S. resident em-

ployed under an 8-month contract with a Cana-

dian firm to install equipment in their Montreal

plant. During the calendar year you were physi-

cally present in Canada for 179 days and were

paid $16,500 (Canadian) for your services. Al-

though you were in Canada for not more than

183 days during the year, your income is not ex-

empt from Canadian income tax because it was

paid by a Canadian resident and was more than

$10,000 (Canadian) for the year.

Pay received by a U.S. 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.S. resident is exempt from

Canadian tax.

Income from self-employment (Article VII).

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. This income is

treated as business profits, and deductions sim-

ilar to those allowed under U.S. law are allowa-

ble.

If you carry on (or have carried on) business

in both Canada and the United States, the busi-

ness profits are attributable to each country

based on the profits that the permanent estab-

lishment might be expected to make if it were a

distinct and separate person engaged in the

same or similar activities. The business profits

attributable to the permanent establishment in-

clude only those profits derived from assets

used, risks assumed, and activities performed

by the permanent establishment.

You may be considered to have a perma-

nent establishment if you meet certain condi-

tions. For more information, see Article V (Per-

manent Establishment) and Article VII

(Business Profits).

Public entertainers (Article XVI). The provi-

sions under income from employment or in-

come from self-employment do not apply to

public entertainers (such as theater, motion pic-

ture, radio, or television artistes, musicians, or

athletes) from the United States who receive

more than $15,000 in gross receipts in Cana-

dian currency, including reimbursed expenses,

from their entertainment activities in Canada

during the calendar year. However, this provi-

sion for public entertainers does not apply (and

the other provisions will apply) to athletes par-

ticipating in team sports in leagues with regu-

larly scheduled games in both the United States

and Canada.

Compensation paid by the U.S. Govern-

ment (Article XIX). Wages, salaries, and simi-

lar income (other than pensions) paid to a U.S.

citizen by the United States or any of its agen-

cies, instrumentalities, or political subdivisions

for discharging governmental functions are ex-

empt from Canadian income tax.

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.

Students and apprentices (Article XX). A

full-time student, apprentice, or business

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Page 2 Publication 597 (October 2015)

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, edu-

cation, or training. The recipient must be or

must have been a U.S. resident immediately

before visiting Canada.

An apprentice or business trainee can claim

this exemption only for a period of one year

from the date the individual first arrived in Can-

ada for the purpose of training.

Pensions, Annuities,

Social Security, and

Alimony

Under Article XVIII, pensions and annuities from

Canadian sources paid to U.S. residents are

subject to tax by Canada, but the tax is limited

to 15% of the gross amount (if a periodic pen-

sion payment) or of the taxable amount (if an

annuity). Canadian pensions and annuities paid

to U.S. residents may be taxed by the United

States, but the amount of any pension included

in income for U.S. tax purposes may not be

more than the amount that would be included in

income in Canada if the recipient were a Cana-

dian resident.

Pensions. A pension includes any payment

under a pension or other retirement arrange-

ment, Armed Forces retirement pay, war veter-

ans pensions and allowances, and payments

under a sickness, accident, or disability plan. It

includes pensions paid by private employers

and the government for services rendered.

Pensions also include payments from indi-

vidual retirement arrangements (IRAs) in the

United States, registered retirement savings

plans (RRSPs) and registered retirement in-

come funds (RRIFs) in Canada.

Pensions do not include social security ben-

efits.

Roth IRAs. A distribution from a Roth IRA

is exempt from Canadian tax to the extent it

would be exempt from U.S. tax if paid to a U.S.

resident. 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.

However, you cannot defer tax on any accruals

due to contributions made after you become a

Canadian resident.

Tax-deferred plans. Generally, income

that accrues in certain Canadian retirement

plans (including RRSPs or RRIFs) is currently

subject to U.S. tax, even if it is not distributed.

However, a U.S. citizen or resident can elect to

defer U.S. tax on income accrued in the plan

until the income is distributed.

The election procedures differ depending on

whether an individual qualifies as an “eligible in-

dividual” as described under Section 4.01 of

Revenue Procedure 2014-55 available at

www.irs.gov/irb/2014-44_IRB/ar10.html. A ben-

eficiary of a Canadian retirement plan is an “eli-

gible individual” if the individual:

Is or at any time was a U.S. citizen or resi-

dent (within the meaning of section

7701(b)(1)(A)) while a beneficiary of the

plan;

Has satisfied any requirement for filing a

U.S. federal income tax return for each tax

year during which the individual was a U.S.

citizen or resident;

Has not reported as gross income on a

U.S. federal income tax return the earnings

that accrued in, but were not distributed

by, the plan during any tax year in which

the individual was a U.S. citizen or resi-

dent; and

Has reported any and all distributions re-

ceived from the plan as if the individual

had made an election under Article XVIII(7)

of the Convention for all years during

which the individual was a U.S. citizen or

resident.

Eligible individuals are treated as having

made the election in the first year in which they

would have been entitled to defer U.S. tax on

the undistributed income from the plan.

Filing Form 8891 (now obsolete) is no lon-

ger required to make the election. An individual

who has previously made the election on Form

8891 or under the procedures set forth in Reve-

nue Procedure 2002-23 (superseded by Reve-

nue Procedure 2014-55) is not required to file

Form 8891 or a similar statement for tax years

after December 31, 2012.

Individuals who have previously reported

the undistributed income accrued in a Canadian

retirement plan (including RRSP or RRIF) on a

U.S. federal income tax return are not eligible

individuals as described in Revenue Procedure

2014-55 , and must continue to report the un-

distributed income accrued in their Canadian

retirement plan on their U.S. federal income tax

return and pay U.S. tax on the undistributed in-

come. If these individuals want to make the

election, they must seek approval from the IRS.

Revenue Procedure 2014-55 also provides

guidance concerning information reporting with

respect to interests in certain Canadian retire-

ment plans (including RRSPs and RRIFs). How-

ever, the revenue procedure does not affect

any other reporting obligations that a benefi-

ciary or annuitant of a Canadian retirement plan

(including RRSPs and RRIFs) may have, in-

cluding the requirement to file a Form 8938,

Statement of Specified Foreign Financial As-

sets, and FinCEN Form 114, Report of Foreign

Bank and Financial Accounts (FBAR).

For more information on the election and in-

formation reporting requirements, see Revenue

Procedure 2014-55. Information on FinCEN

Form 114 is available at

bsaefiling.fincen.treas.gov/

NoRegFBARFiler.html.

Annuities. An annuity is a stated sum payable

periodically at stated times, during life, or during

a specified number of years, under an obliga-

tion to make the payments in return for ade-

quate and full consideration (other than serv-

ices rendered). Annuities do not include:

Non-periodic payments, or

An annuity the cost of which was deducti-

ble for tax purposes.

Special rules. 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.

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.

Social security benefits. U.S. 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.

Alimony. Alimony and similar amounts (includ-

ing child support payments) from Canadian

sources paid to U.S. residents are exempt from

Canadian tax. For purposes of U.S. 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 resi-

dent.

Investment Income

From Canadian

Sources

The treaty provides beneficial treatment for cer-

tain items of Canadian source income that re-

sult from an investment of capital.

Dividends (Article X). For Canadian source

dividends received by U.S. residents, the Cana-

dian income tax generally may not be more

than 15%.

A 5% rate applies to intercorporate divi-

dends paid from a subsidiary to a parent corpo-

ration owning at least 10% of the subsidiary's

voting stock. However, a 10% rate applies if the

payer of the dividend is a nonresident-owned

Canadian investment corporation.

These rates do not apply if the owner of the

dividends carries on, or has carried on, a busi-

ness in Canada through a permanent establish-

ment and the holding on which the income is

paid is effectively connected with that perma-

nent establishment.

Interest (Article XI). Generally, Canadian

source interest received by U.S. residents is ex-

empt from Canadian income tax.

The exemption does not apply if the owner

of the interest carries on, or has carried on, a

business in Canada through a permanent es-

tablishment and the debt on which the income

is paid is effectively connected with that perma-

nent establishment.

Gains from the sale of property (Article

XIII). Generally, gains from the sale of personal

property by a U.S. resident having no perma-

nent establishment in Canada are exempt from

Canadian income tax. However, the exemption

from Canadian tax does not apply to gains real-

ized by U.S. residents on Canadian real prop-

erty, and on personal property belonging to a

permanent establishment in Canada.

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Publication 597 (October 2015) Page 3

If the property subject to Canadian tax is a

capital asset and was owned by the U.S. resi-

dent on September 26, 1980, not as part of the

business property of a permanent establish-

ment in Canada, generally the taxable gain is

limited to the appreciation after 1984.

Royalties (Article XII). The following are ex-

empt from Canadian tax:

1. Copyright royalties and other like pay-

ments for the production or reproduction

of any literary, dramatic, musical, or artistic

work (other than payments for motion pic-

tures and works on film, videotape, or

other means of reproduction for use in

connection with television, which may be

taxed at 10%),

2. Payments for the use of, or the right to

use, computer software,

3. Payments for the use of, or the right to

use, any patent or any information con-

cerning industrial, commercial, or scientific

experience (but not within a rental or fran-

chise agreement), and

4. Payments for broadcasting as agreed to in

an exchange of notes between the coun-

tries.

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 connec-

ted with that permanent establishment.

This exemption (or lower rate) does not ap-

ply to royalties to explore for or to exploit min-

eral deposits, timber, and other natural resour-

ces.

Other Income

Generally, Canadian source income that is not

specifically mentioned in the treaty, may be

taxed by Canada.

Gambling losses. Canadian residents may

deduct gambling losses in the U.S. against

gambling winnings in the U.S. in the same man-

ner as a U.S. resident.

Charitable Contributions

United States income tax return. Under Arti-

cle XXI, you may deduct contributions to certain

qualified Canadian charitable organizations on

your United States income tax return. Besides

being subject to the overall limits applicable to

all your charitable contributions under U.S. tax

law, your charitable contributions to Canadian

organizations (other than contributions to a col-

lege or university at which you or a member of

your family is or was enrolled) are subject to the

U.S. percentage limits on charitable contribu-

tions, applied to your Canadian source income.

If your return does not include gross income

from Canadian sources, charitable contribu-

tions to Canadian organizations are generally

not deductible.

Example.

You are a U.S. citizen living in

Canada. You have both U.S. and Canadian

source income. During your tax year, you con-

tribute to Canadian organizations that would

qualify as charitable organizations under U.S.

tax law if they were U.S. organizations.

To figure the maximum amount of the contri-

bution to Canadian organizations that you can

deduct on your U.S. income tax return, multiply

your adjusted gross income from Canadian

sources by the percentage limit that applies to

contributions under U.S. income tax law. 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.S. income tax law. The

appropriate percentage limit for U.S. tax purpo-

ses is applied to your total adjusted gross in-

come from all sources.

Qualified charities. These Canadian or-

ganizations must meet the qualifications that a

U.S. charitable organization must meet under

U.S. tax law. Usually an organization will notify

you if it qualifies. For further information on

charitable contributions and the U.S. percent-

age limits, see Pub. 526, Charitable Contribu-

tions.

Canadian income tax return. Under certain

conditions, contributions to qualified U.S. chari-

table organizations may also be claimed on

your Canadian income tax return if you are a

Canadian resident.

Income Tax Credits

The treaty contains a credit provision (Article

XXIV) for the elimination of double taxation. In

general, the United States and Canada both al-

low a credit against their income tax for the in-

come tax paid to the other country on income

from sources in that other country.

For detailed discussions of the U.S. income

tax treatment of tax paid to foreign countries,

see Pub. 514, Foreign Tax Credit for Individu-

als.

Competent Authority

Assistance

Under Article XXVI, a U.S. citizen or resident

can request assistance from the U.S. compe-

tent authority when the actions of Canada, the

United States, or both, potentially result in dou-

ble taxation or taxation contrary to the treaty.

The U.S. competent authority may then consult

with the Canadian competent authority to deter-

mine if the double taxation or denial of treaty

benefits in question can be avoided. If the com-

petent authorities are not able to reach agree-

ment in a case, binding arbitration proceedings

may apply.

Generally, you should file a competent au-

thority request promptly after a competent au-

thority issue arises or is likely to arise. Under

certain circumstances, a competent authority

request or a treaty notification must be filed

within a certain time limit.

For requirements to file, and information that

should be included in, a competent authority re-

quest, see Revenue Procedure 2015-40,

2015-35 I.R.B. 236, available at www.irs.gov/

irb/2015-35_IRB/ar10.html#d0e1688. Addi-

tional information is available at www.irs.gov/

Individuals/International-Taxpayers/Tax-

Treaties.

Your competent authority request should be

addressed to:

Deputy Commissioner (International)

Large Business and International Division

Internal Revenue Service

1111 Constitution Ave., NW

Washington, D.C. 20224

SE:LB:IN:ADCI:TAIT:M4-365

(Attention: TAIT)

All mail should be sent to this mailing ad-

dress, including regular mail, express mail,

overnight mail, and mail sent by USPS, FedEx,

UPS, or any other carrier.

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.S. taxes on Form 1040X, Form

1120X, or amended Form 1041, whichever

is appropriate. 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. For figuring this

credit, attach either Form 1116, Foreign

Tax Credit (Individual, Estate, or Trust), or

Form 1118, Foreign Tax Credit—Corpora-

tions, as appropriate. Attach your protec-

tive claim to your request for competent

authority assistance.

Take appropriate action under Canadian

procedures to avoid the lapse or termina-

tion of your right of appeal under Canadian

income tax law.

Text of Treaty

You can get the text of the U.S.-Canada income

tax treaty at IRS.gov. Enter “Tax Treaties” in the

search box. Click on “United States Income Tax

Treaties–A to Z.”

How To Get Tax Help

You can get help with unresolved tax issues, or-

der free publications and forms, ask tax ques-

tions, and get information from the IRS in sev-

eral ways.

You can access IRS.gov 24 hours a

day, 7 days a week.

You can call the IRS for help at (267)

941-1000 (not a toll-free call).

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Page 4 Publication 597 (October 2015)

For answers to technical or account

questions, you can write to:

Internal Revenue Service

International Section

Philadelphia, PA 19255-0525

Canadian Taxation

You can get information on Canadian taxation

from the Canada Revenue Agency.

You can access the Canada Revenue

Agency at

www.cra-arc.gc.ca.

You can contact the Canada Revenue

Agency for help at 1-800-959-8281

(from anywhere in Canada and the

United States).

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