Residency
The United States imposes tax on Canadian residents in certain circumstances. Canadians may also be considered taxable in the United States if they meet certain U.S. residency requirements. If this is the case, world-wide income may be taxed in the United States. The United States uses a formula based on the number of days you were in the country over the last three years. If you were resident in the United States for at least 31 days in the year, you must look to the formula to determine residency. Essentially, the formula adds the number of days resident in the current year, plus the number of days divided by three in the first preceding year, plus the number of days divided by six in the second preceding year. If the addition of these three amounts total 183 or more, you are considered to be a resident alien subject to United States taxation. As a Canadian however, if you are considered a United States resident under these rules, you may then apply under the United States – Canada tax treaty for closer connection status to Canada to only pay tax in Canada or file a Form 8840 - Closer Connection Exception Statement for Aliens. Of course there are certain exceptions to the above rules for students, involuntary residency due to health issues and Canadians commuting to employment on a regular basis to the United States.
United States Source Income for Canadians Considered Non-resident Aliens
If you are not considered a resident of the United States, you may still be subject to holding taxes and filing requirements as a non-resident Alien..
If you work for your Canadian employer in the United States, you may be subject to United States income taxes on the proportion of your earnings earned in the United States. You will be exempt under treaty if you earn less than US $10,000 or you spent less than 183 days in the United States.
Rent from Real Estate
A withholding tax of 30% normally applies to gross rent received by a Canadian resident on real estate located in the United States. Your tenant is required to withhold and remit these taxes. You may elect to file a United States tax return for the year and calculate income taxes based on your net income. This election is permanent and you will be taxed on this basis in the future. Your tenant will no longer be required to withhold and remit taxes.
Sale of Real Estate
Sales of United States real estate are subject to a withholding tax of 10% of the sale price. You may get this tax back upon filing a United States tax return reporting the net gain or loss on sale. If you are selling a property for less than US$300,000 and the buyer intends on living in the residence, you are not subject to the withholding tax, but may still be required to pay tax on filing your return. A return is required to be filed in any case on the disposition of real estate located in the United States. There are treaty provisions available to reduce the amount of capital gains taxes.
Dividends and Interest
Dividends and interest by U.S. corporations and persons are subject to withholding taxes of 15% and 10% respectively. You do not need to file any tax returns in the United States.
Sales of Stocks and Bonds
There is not normally any tax applied to the sale of stocks and bonds with some rare exceptions in respect of real estate.
Estate Taxes
Estate taxes in the United States can be significant and the rules are complex. Treaty provisions are available to reduce or eliminate the taxes in the case of smaller estates, but care must be taken to plan your estate and review any investment or personal property holdings in the United States.
Gambling
In Canada, gambling winnings are not taxable. Many Canadians however take trips to the United States and visit Las Vegas, Atlantic City or other areas where gambling is available. Gambling winnings are taxable in the United States and Canadians are subject to 30% tax on certain winnings. You may apply for a refund of these withholding taxes by filing a United States non-resident income tax return. You may get a refund if you have gambling losses to offset the gains.
Further Information
Canada Revenue Agency produces a web page on Canadian Residents Going Down South which expands upon the information presented here.
U.S. taxation is complex. This document serves to highlight common issues vis-à-vis Canadians. Professional advice should be sought for any transactions or residency issues concerning the United States.
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