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           Publication 597
           (Rev. October 2015)                                   Future Developments
           Cat. No. 46597M                                       For  the  latest  information  about  developments 
Department                                                       related to Pub. 597, such as legislation enacted 
of the                                                           after  it  was  published,  go  to   www.irs.gov/
Treasury                                                         pub597. 
Internal   Information on
Revenue 
Service                                                          What's New
           the United
                                                                 Under  Revenue  Procedure  2014-55,  2014-44 
                                                                 I.R.B.  753,  available  at    www.irs.gov/irb/
           States–Canada                                         2014-44_IRB/ar10.html,         there are new 
                                                                 procedures  for  electing  to  defer  U.S.  tax  on 
                                                                 undistributed  income  from  certain  Canadian 
           Income Tax                                            retirement plans (including RRSPs and RRIFs). 
                                                                 Form  8891  is  no  longer  required  to  make  the 
           Treaty                                                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 
                                                                 CAUTION 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 
           Get forms and other information faster and easier at: provides definitions of residents of Canada and 
           • IRS.gov (English)                                   the United States, and provides specific criteria 
           • IRS.gov/Spanish (Español)                           for  determining  your  residence  (a  tie-breaker 
           • IRS.gov/Chinese

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rule) if both countries consider you to be a resi- If you carry on (or have carried on) business Example. You are a U.S. resident em-
dent under their domestic tax laws (a dual-resi- in Canada through a permanent establishment, ployed under an 8-month contract with a Cana-
dent taxpayer). Canada may tax the profits the permanent es- dian firm to install equipment in their Montreal
tablishment might be expected to make if it plant. During the calendar year you were physi-
Dual-resident taxpayers who are Canadian were a distinct and separate person. The busi- cally present in Canada for 179 days and were
residents under a tie-breaker rule. If you ness profits attributable to the permanent estab- paid $16,500 (Canadian) for your services. Al-
are a dual-resident taxpayer because you have lishment include only those profits derived from though you were in Canada for not more than
a U.S. green card but you determine under the assets used, risks assumed, and activities per- 183 days during the year, your income is not ex-
tie-breaker rule that you are a resident of Can- formed by the permanent establishment. empt from Canadian income tax because it was
ada, you may claim treaty benefits and compute You may be considered to have a perma- paid by a Canadian resident and was more than
your U.S. income tax as a nonresident alien. nent establishment if you meet certain condi- $10,000 (Canadian) for the year.
But you must file a U.S. income tax return by tions. For more information, see Article V (Per-
the due date (including extensions) using Form manent Establishment) and Article VII Pay received by a U.S. resident for work
1040NR or Form 1040NR-EZ. You must also (Business Profits). regularly done in more than one country as an
attach a fully completed Form 8833, employee on a ship, aircraft, motor vehicle, or
Treaty-Based Return Position Disclosure Under Services permanent establishment (Article train operated by a U.S. resident is exempt from
Section 6114 or 7701(b). For more information, V Paragraph 9). Under paragraph 9 of Article Canadian tax.
see Pub. 519, U.S. Tax Guide for Aliens. V, if you, or your enterprise, provide services in
Canada, you may be treated as providing them Income from self-employment (Article VII).
Dual-resident taxpayers who are not Cana- through a permanent establishment in Canada Income from services performed (other than
dian residents under a tie-breaker rule. If even if you do not have a fixed base in Canada those performed as an employee) are taxed in
you are a dual resident of the United States and from which you operate. This rule applies, how- Canada if they are attributable to a permanent
a third country and derive income from Canada, ever, only if: establishment in Canada. This income is
you can only claim treaty benefits from Canada treated as business profits, and deductions sim-
if you have a substantial presence, permanent 1. You are present in Canada for more than ilar to those allowed under U.S. law are allowa-
home or habitual abode in the United States, 183 days in a 12-month period, and, dur- ble.
and your personal and economic relations are ing that period or periods, more than 50 If you carry on (or have carried on) business
closer to the United States than to any third percent of your gross active business rev- in both Canada and the United States, the busi-
state. enues consist of income derived from your ness profits are attributable to each country
services performed in Canada; or
If you are a U.S. citizen or green card holder based on the profits that the permanent estab-
living in Canada, you still have to file a Form 2. Your enterprise provides services in Can- lishment might be expected to make if it were a
1040 and report your worldwide income be- ada for an aggregate of 183 days or more distinct and separate person engaged in the
cause of the “saving clause” in Article XXIX(2), in any 12-month period with respect to the same or similar activities. The business profits
which allows the United States to tax its citizens same or connected project for customers attributable to the permanent establishment in-
and residents as if the treaty had not entered who are either residents of Canada or who clude only those profits derived from assets
into effect. There are limited exceptions to the maintain a permanent establishment in used, risks assumed, and activities performed
saving clause, which means certain types of in- Canada and your services are provided in by the permanent establishment.
come may be exempt from tax in the United respect of that permanent establishment. You may be considered to have a perma-
States. Exceptions to the saving clause can be This rule applies to tax years beginning af- nent establishment if you meet certain condi-
found in Article XXIX, paragraph 3. ter January 1, 2010. tions. For more information, see Article V (Per-
manent Establishment) and Article VII
Special foreign tax credit rules for U.S. citi- (Business Profits).
zens residing in Canada. If you are a U.S. Personal Services Public entertainers (Article XVI). The provi-
citizen and a resident of Canada, special for-
sions under income from employment or in-
eign tax credit rules may apply to relieve double A U.S. citizen or resident who is temporarily come from self-employment do not apply to
tax on income from the United States. See Arti- present in Canada during the tax year is exempt public entertainers (such as theater, motion pic-
cle XXIV(3), (4) and (5). For more information from Canadian income taxes on pay for serv- ture, radio, or television artistes, musicians, or
about foreign tax credit rules generally, see In- ices performed, or remittances received from athletes) from the United States who receive
come Tax Credits, later. the United States, if the citizen or resident quali- more than $15,000 in gross receipts in Cana-
fies under one of the treaty exemption provi-
Example. As a U.S. citizen residing in Can- sions set out below. dian currency, including reimbursed expenses,
ada, you have dividend income from a U.S. cor- from their entertainment activities in Canada
poration. Canada will tax you on your worldwide Income from employment (Article XV). In- during the calendar year. However, this provi-
income, including your U.S. dividend income. come U.S. residents receive for the perform- sion for public entertainers does not apply (and
As a resident of Canada under the treaty you ance of dependent personal services in Canada the other provisions will apply) to athletes par-
can claim a reduced withholding rate from the (except as public entertainers) is exempt from ticipating in team sports in leagues with regu-
United States on the dividend income (15%) Canadian tax if it is not more than $10,000 in larly scheduled games in both the United States
rather than 30%, and Canada generally allows Canadian currency for the year. If it is more than and Canada.
you to deduct the U.S. withholding tax from your $10,000 for the year, it is exempt only if: Compensation paid by the U.S. Govern-
Canadian tax on that income. However, you still
need to file a U.S. income tax return and report 1. The residents are present in Canada for ment (Article XIX). Wages, salaries, and simi-
your worldwide income, and pay any residual no more than 183 days in any 12-month lar income (other than pensions) paid to a U.S.
tax to the United States, to the extent it exceeds period beginning or ending in the year citizen by the United States or any of its agen-
the U.S. tax withheld and the Canadian tax paid concerned, and cies, instrumentalities, or political subdivisions
with respect to the income. 2. The income is not paid by, or on behalf of, for discharging governmental functions are ex-
a Canadian resident and is not borne by a empt from Canadian income tax.
Income from self-employment (Article VII). permanent establishment in Canada. The exemption does not apply to pay for
Income from services performed (other than services performed in connection with any trade
those performed as an employee) are taxed in Whether there is a permanent estab- or business carried on for profit by the United
Canada if they are attributable to a permanent TIP lishment in Canada is determined by States, or any of its agencies, instrumentalities,
establishment in Canada. This income is the rules set forth in Article V. or political subdivisions.
treated as business profits, and taxable on a net
basis in Canada in accordance with Article Students and apprentices (Article XX). A
VII(3). full-time student, apprentice, or business
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trainee who is in Canada to study or acquire 7701(b)(1)(A)) while a beneficiary of the Cross-border commuters, and
business experience is exempt from Canadian plan; Individuals who participate in a Canadian
income tax on remittances received from any Has satisfied any requirement for filing a qualifying plan.
source outside Canada for maintenance, edu- U.S. federal income tax return for each tax
cation, or training. The recipient must be or year during which the individual was a U.S. Generally, distributions in such cases are
must have been a U.S. resident immediately citizen or resident; deemed to be earned in the country in which
before visiting Canada. Has not reported as gross income on a the plan is established, without regard to where
An apprentice or business trainee can claim U.S. federal income tax return the earnings the services were rendered.
this exemption only for a period of one year that accrued in, but were not distributed
from the date the individual first arrived in Can- by, the plan during any tax year in which Social security benefits. U.S. social security
ada for the purpose of training. the individual was a U.S. citizen or resi- benefits paid to a resident of Canada are taxed
dent; and in Canada as if they were benefits under the
Has reported any and all distributions re- Canada Pension Plan, except that 15% of the
Pensions, Annuities, ceived from the plan as if the individual amount of the benefit is exempt from Canadian
had made an election under Article XVIII(7) tax.
Social Security, and of the Convention for all years during
which the individual was a U.S. citizen or Alimony. Alimony and similar amounts (includ-
Alimony resident. ing child support payments) from Canadian
sources paid to U.S. residents are exempt from
Under Article XVIII, pensions and annuities from Eligible individuals are treated as having Canadian tax. For purposes of U.S. tax, these
Canadian sources paid to U.S. residents are made the election in the first year in which they amounts are excluded from income to the same
subject to tax by Canada, but the tax is limited would have been entitled to defer U.S. tax on extent they would be excluded from income in
to 15% of the gross amount (if a periodic pen- the undistributed income from the plan. Canada if the recipient was a Canadian resi-
sion payment) or of the taxable amount (if an Filing Form 8891 (now obsolete) is no lon- dent.
annuity). Canadian pensions and annuities paid ger required to make the election. An individual
to U.S. residents may be taxed by the United who has previously made the election on Form
States, but the amount of any pension included 8891 or under the procedures set forth in Reve- Investment Income
in income for U.S. tax purposes may not be nue Procedure 2002-23 (superseded by Reve-
more than the amount that would be included in nue Procedure 2014-55) is not required to file From Canadian
income in Canada if the recipient were a Cana- Form 8891 or a similar statement for tax years
dian resident. after December 31, 2012. Sources
Individuals who have previously reported
Pensions. A pension includes any payment the undistributed income accrued in a Canadian The treaty provides beneficial treatment for cer-
under a pension or other retirement arrange- retirement plan (including RRSP or RRIF) on a tain items of Canadian source income that re-
ment, Armed Forces retirement pay, war veter- U.S. federal income tax return are not eligible sult from an investment of capital.
ans pensions and allowances, and payments individuals as described in Revenue Procedure
under a sickness, accident, or disability plan. It 2014-55 , and must continue to report the un- Dividends (Article X). For Canadian source
includes pensions paid by private employers distributed income accrued in their Canadian dividends received by U.S. residents, the Cana-
and the government for services rendered. retirement plan on their U.S. federal income tax dian income tax generally may not be more
Pensions also include payments from indi- return and pay U.S. tax on the undistributed in- than 15%.
vidual retirement arrangements (IRAs) in the come. If these individuals want to make the A 5% rate applies to intercorporate divi-
United States, registered retirement savings election, they must seek approval from the IRS. dends paid from a subsidiary to a parent corpo-
plans (RRSPs) and registered retirement in- Revenue Procedure 2014-55 also provides ration owning at least 10% of the subsidiary's
come funds (RRIFs) in Canada. guidance concerning information reporting with voting stock. However, a 10% rate applies if the
Pensions do not include social security ben- respect to interests in certain Canadian retire- payer of the dividend is a nonresident-owned
efits. ment plans (including RRSPs and RRIFs). How- Canadian investment corporation.
ever, the revenue procedure does not affect These rates do not apply if the owner of the
Roth IRAs. A distribution from a Roth IRA any other reporting obligations that a benefi- dividends carries on, or has carried on, a busi-
is exempt from Canadian tax to the extent it ciary or annuitant of a Canadian retirement plan ness in Canada through a permanent establish-
would be exempt from U.S. tax if paid to a U.S. (including RRSPs and RRIFs) may have, in- ment and the holding on which the income is
resident. In addition, you may elect to defer any cluding the requirement to file a Form 8938, paid is effectively connected with that perma-
tax in Canada on income accrued within the Statement of Specified Foreign Financial As- nent establishment.
Roth IRA but not distributed by the Roth IRA. sets, and FinCEN Form 114, Report of Foreign
However, you cannot defer tax on any accruals Bank and Financial Accounts (FBAR). Interest (Article XI). Generally, Canadian
due to contributions made after you become a For more information on the election and in- source interest received by U.S. residents is ex-
Canadian resident. formation reporting requirements, see Revenue empt from Canadian income tax.
Procedure 2014-55. Information on FinCEN The exemption does not apply if the owner
Tax-deferred plans. Generally, income Form 114 is available at of the interest carries on, or has carried on, a
that accrues in certain Canadian retirement bsaefiling.fincen.treas.gov/ business in Canada through a permanent es-
plans (including RRSPs or RRIFs) is currently NoRegFBARFiler.html. tablishment and the debt on which the income
subject to U.S. tax, even if it is not distributed. is paid is effectively connected with that perma-
However, a U.S. citizen or resident can elect to Annuities. An annuity is a stated sum payable nent establishment.
defer U.S. tax on income accrued in the plan periodically at stated times, during life, or during
until the income is distributed. a specified number of years, under an obliga- Gains from the sale of property (Article
The election procedures differ depending on tion to make the payments in return for ade- XIII). Generally, gains from the sale of personal
whether an individual qualifies as an “eligible in- quate and full consideration (other than serv- property by a U.S. resident having no perma-
dividual” as described under Section 4.01 of ices rendered). Annuities do not include: nent establishment in Canada are exempt from
Revenue Procedure 2014-55 available at Non-periodic payments, or Canadian income tax. However, the exemption
www.irs.gov/irb/2014-44_IRB/ar10.html. A ben- from Canadian tax does not apply to gains real-
eficiary of a Canadian retirement plan is an “eli- An annuity the cost of which was deducti-
gible individual” if the individual: ble for tax purposes. ized by U.S. residents on Canadian real prop-
erty, and on personal property belonging to a
Is or at any time was a U.S. citizen or resi- permanent establishment in Canada.
dent (within the meaning of section Special rules. Special rules apply to pensions
and annuities with respect to:
Short-term assignments,

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If the property subject to Canadian tax is a Example. You are a U.S. citizen living in For requirements to file, and information that
capital asset and was owned by the U.S. resi- Canada. You have both U.S. and Canadian should be included in, a competent authority re-
dent on September 26, 1980, not as part of the source income. During your tax year, you con- quest, see Revenue Procedure 2015-40,
business property of a permanent establish- tribute to Canadian organizations that would 2015-35 I.R.B. 236, available at www.irs.gov/
ment in Canada, generally the taxable gain is qualify as charitable organizations under U.S. irb/2015-35_IRB/ar10.html#d0e1688. Addi-
limited to the appreciation after 1984. tax law if they were U.S. organizations. tional information is available at www.irs.gov/
To figure the maximum amount of the contri- Individuals/International-Taxpayers/Tax-
Royalties (Article XII). The following are ex- bution to Canadian organizations that you can Treaties.
empt from Canadian tax: deduct on your U.S. income tax return, multiply
1. Copyright royalties and other like pay- your adjusted gross income from Canadian Your competent authority request should be
ments for the production or reproduction sources by the percentage limit that applies to addressed to:
of any literary, dramatic, musical, or artistic contributions under U.S. income tax law. Then Deputy Commissioner (International)
work (other than payments for motion pic- include this amount on your return along with all Large Business and International Division
tures and works on film, videotape, or your domestic charitable contributions, subject Internal Revenue Service
other means of reproduction for use in to the appropriate percentage limit required for 1111 Constitution Ave., NW
connection with television, which may be contributions under U.S. income tax law. The Washington, D.C. 20224
taxed at 10%), appropriate percentage limit for U.S. tax purpo- SE:LB:IN:ADCI:TAIT:M4-365
ses is applied to your total adjusted gross in- (Attention: TAIT)
2. Payments for the use of, or the right to come from all sources.
use, computer software,
Qualified charities. These Canadian or- All mail should be sent to this mailing ad-
3. Payments for the use of, or the right to ganizations must meet the qualifications that a dress, including regular mail, express mail,
use, any patent or any information con- U.S. charitable organization must meet under overnight mail, and mail sent by USPS, FedEx,
cerning industrial, commercial, or scientific U.S. tax law. Usually an organization will notify UPS, or any other carrier.
experience (but not within a rental or fran- you if it qualifies. For further information on
chise agreement), and charitable contributions and the U.S. percent- In addition to a timely request for assistance,
4. Payments for broadcasting as agreed to in age limits, see Pub. 526, Charitable Contribu- you should take the following measures:
an exchange of notes between the coun- tions. File a timely protective claim for credit or
refund of U.S. taxes on Form 1040X, Form
tries. 1120X, or amended Form 1041, whichever
Canadian income tax return. Under certain
This rate or exemption does not apply if the conditions, contributions to qualified U.S. chari- is appropriate. This will, among other
owner of the royalties carries on, or has carried table organizations may also be claimed on things, give you the benefit of a foreign tax
on, a business in Canada through a permanent your Canadian income tax return if you are a credit in case you do not qualify for the
establishment and the right or property on Canadian resident. treaty benefit in question. For figuring this
which the income is paid is effectively connec- credit, attach either Form 1116, Foreign
ted with that permanent establishment. Tax Credit (Individual, Estate, or Trust), or
Form 1118, Foreign Tax Credit—Corpora-
This exemption (or lower rate) does not ap- Income Tax Credits tions, as appropriate. Attach your protec-
ply to royalties to explore for or to exploit min- tive claim to your request for competent
eral deposits, timber, and other natural resour- The treaty contains a credit provision (Article authority assistance.
ces. XXIV) for the elimination of double taxation. In Take appropriate action under Canadian
general, the United States and Canada both al- procedures to avoid the lapse or termina-
low a credit against their income tax for the in- tion of your right of appeal under Canadian
Other Income come tax paid to the other country on income income tax law.
from sources in that other country.
Generally, Canadian source income that is not
specifically mentioned in the treaty, may be For detailed discussions of the U.S. income
taxed by Canada. tax treatment of tax paid to foreign countries, Text of Treaty
see Pub. 514, Foreign Tax Credit for Individu-
Gambling losses. Canadian residents may als. You can get the text of the U.S.-Canada income
tax treaty at IRS.gov. Enter “Tax Treaties” in the
deduct gambling losses in the U.S. against search box. Click on “United States Income Tax
gambling winnings in the U.S. in the same man- Treaties–A to Z.”
ner as a U.S. resident. Competent Authority
Assistance
How To Get Tax Help
Charitable Contributions Under Article XXVI, a U.S. citizen or resident
can request assistance from the U.S. compe- You can get help with unresolved tax issues, or-
United States income tax return. Under Arti- tent authority when the actions of Canada, the der free publications and forms, ask tax ques-
cle XXI, you may deduct contributions to certain United States, or both, potentially result in dou- tions, and get information from the IRS in sev-
qualified Canadian charitable organizations on ble taxation or taxation contrary to the treaty. eral ways.
your United States income tax return. Besides The U.S. competent authority may then consult
being subject to the overall limits applicable to with the Canadian competent authority to deter- You can access IRS.gov 24 hours a
all your charitable contributions under U.S. tax mine if the double taxation or denial of treaty day, 7 days a week.
law, your charitable contributions to Canadian benefits in question can be avoided. If the com-
organizations (other than contributions to a col- petent authorities are not able to reach agree- You can call the IRS for help at (267)
lege or university at which you or a member of ment in a case, binding arbitration proceedings 941-1000 (not a toll-free call).
your family is or was enrolled) are subject to the may apply.
U.S. percentage limits on charitable contribu- Generally, you should file a competent au-
tions, applied to your Canadian source income. thority request promptly after a competent au-
If your return does not include gross income thority issue arises or is likely to arise. Under
from Canadian sources, charitable contribu- certain circumstances, a competent authority
tions to Canadian organizations are generally request or a treaty notification must be filed
not deductible. within a certain time limit.
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For  answers  to  technical  or  account Canadian Taxation                                  You can contact the Canada Revenue 
questions, you can write to:                                                                Agency  for  help  at  1-800-959-8281 
                                                                                            (from  anywhere  in  Canada  and  the 
                                         You  can  get  information  on  Canadian  taxation United States).
Internal Revenue Service                 from the Canada Revenue Agency.
International Section                    You can access the Canada Revenue 
Philadelphia, PA 19255-0525              Agency at www.cra-arc.gc.ca.

Publication 597 (October 2015)                                                                                               Page 5

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