The United States is one of the few countries that taxes its citizens on the money they make in the United States and anywhere else. In this article, you will expand your knowledge regarding all about the U.S./Canada cross-border tax treaty. The united states has a cross-border tax treaty with several countries that directly affect American citizens living in those countries. This cross-border tax treaty helps American citizens to operate outside their country. American ex-pats living in Canada must pay taxes in Canada and again in the U.S. However, The U.S. and Canada signed a treaty that helps the ex-pats of both countries, so they don’t have to pay tax twice while working outside their countries. Explore this article more to understand the tax treaty even further to know exactly what you owe, when you owe it and who you owe it to, and the benefits of this tax treaty.
This cross-border tax treaty was first signed in 1980 and explains how both ex-pats residing in different countries working in one country and living in the other are taxed. Americans classified as non-Canadian residents do not have to pay taxes if their monthly income is below $10,000. There are some exceptions for a few types of work, such as public entertainers or self-employed individuals. And if they lived in Canada for less than 182 days.
These scenarios get more complicated with time, and individuals have to manage their work in both countries. Most people do not have the knowledge to take care of all of this by themselves. For this, you can always contact an accounting firm with extensive experience in cross-border taxation and help a business or an individual handle their cross-border taxes.
Why Does The Tax Treaty Between The U.S. and Canada Exists?
The U.S./Canada cross-border tax treaty alleviates the issues for U.S. citizens residing in Canada and Canadian citizens living in the U.S. Most countries around the globe have some tax-paying system that makes it hard for both American and Canadian citizens when it comes to paying taxes. The main reason behind this tax treaty is that the U.S. is one of those countries that impose taxes based on your citizenship, not by the place of your residency. This system makes some Americans responsible for paying double taxes. The U.S./Canada cross-border tax treaty solves this issue of double taxation.
How To Claim U.S./Canada Cross Border Tax Treaty Benefits
You get many benefits from the U.S./Canada Cross Border Tax Treaty, but they don’t have to be claimed. But if you find yourself in this complicated situation, don’t worry. Fill form 8833, a treaty-based return policy disclosure under section 6114 or 7701(b). This form can help you claim the tax treaty benefits specific to your country of residence. You can explain to the IRS why the certain income needs to receive beneficial treatment.
For more details regarding the U.S./Canada cross-border tax treaty, you can contact us, and we will assist you as best as possible.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.