Dual Citizenship (Canadian/US) Income Taxes Reporting and Obligation as Individual Tax Filers

Downtown Seattle, WA, USA

As Canadian Residents, who are also US citizens, do you have any obligation to pay income tax if that source of income is a US income?

In Canada, individuals are taxed based on residency. All residents are required to report their worldwide income regardless where they were earned, and citizenship. Tax filers are obliged to report their worldwide income in Canada, and as US citizens, obliged to report their worldwide income in the US as well.Basically, being Canadian residents who are also US citizens, they have to report the same income in each country. The term residence is separate from citizenships or domicile status of the tax filers. It does not impose a tax upon tax filers just because those tax filers are citizens or domiciled in Canada, it’s more into the residency status.

The Internal Revenue Service (IRS) taxes all US citizens, regardless where they reside in the world. Thus, filing a US tax return (as a US citizen) and a Canadian tax return (as a Canadian resident) is required.For example, tax filers will be taxed on worldwide income, including all employment income as Canadian residents. If the annual US employment income exceeds US$10,000, it will also be taxable in the US. However, they can claim foreign tax credits in Canada, for the lesser of US taxes paid and Canadian taxes payable on US source of income.

If their US income does not exceed the US$10,000 threshold, then they would be taxable in Canada, and not in the US under the Canada – US Tax Convention. But they still have to file a US tax return, reporting the treaty exemption and claiming a full refund of the tax withheld. Also, they have to file a Canadian tax return reporting all US and other worldwide income. There won't be any US foreign tax credits related to income earned claimed since this income is not taxed in the US.

Jurisdictions? US and Canada are under the “International Tax Conventions”, thus it eliminates double taxation. While income needs to be reported both on a US and Canadian tax returns, and worldwide income being the tax base in both tax jurisdictions, the income earned is generally taxable in Canada and in the US, thus a possibility of double taxation.

Because of Canada and US Convention, it provides double taxation relief, usually taxing income in the country in which income is earned. Thus, tax filers will only be taxed on Canadian income in Canada, and taxed on US income in the US. The US taxes payable will be offset by the foreign tax credits for Canadian taxes paid. Canadian taxes usually exceed the US amounts, thus eliminating US tax liability, (except for any US Alternative minimum tax – if applicable (mostly for higher taxable taxpayer). Likewise, with Canadian taxes payable, offset by foreign tax credit for US taxes paid.

Please feel free to leave comments/inquiries, or you may contact me at:

Earla RiopelBSCom(USA), DipAcc(UBC)

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