Today's article:


Information about the US-Canada Tax Treaty


The US-Canada tax treaty contains no specific benefits for either students or visiting scholars who are residents of Canada. The treaty does, however, contain several general provisions that will apply to some students and scholars from Canada and which a few may find beneficial.

The first provision, contained in Article XV of the US-Canada tax treaty, applies to Canadian residents who had less than $10,000 of earned income in the US in the calendar year.

Article XV provides that:

2. ...remuneration derived by a [Canadian resident] in respect of employment exercised in a calendar year in [the United States] shall be taxable only in [Canada] if:

(a) Such remuneration does not exceed ten thousand dollars ($10,000) in the currency of [the United States]...

Thus if you had less than $10,000 in earned income from US sources in a calendar year, you may exclude this income from federal income tax in the US by claiming Article XV of the US-Canada tax treaty when you file Form 1040NR, "US Nonresident Alien Income Tax Return," or Form 1040NR-EZ, "US Income Tax Return for Certain Nonresident Aliens With No Dependents."

To claim this provision of the US-Canada tax treaty on Form 1040NR, write "0" on page 1, Line 8 of the form, "Wages, salaries, tips, etc." Write the amount of your earned income for the year (which must be less than $10,000, of course) on page 1, Line 22, "Total income exempt by a treaty from page 5, Item M." On page 5, Item M, claim the tax treaty for "Canada," and write the amount of your earned income (i.e. the same amount you wrote on page 1, Line 22); after the amount write "earned income less than $10,000, Article XV."

To claim this provision of the US-Canada tax treaty on Form 1040NR-EZ, write "0" on page 1, Line 3 of the form, "Wages, salaries, tips, etc." Write the amount of your earned income for the year (which must be less than $10,000, of course) on page 1, Line 6, "Total wages and scholarships exempt by a treaty from page 2, Item J." On page 2, Item J, claim the tax treaty for "Canada," and write the amount of your earned income (i.e. the same amount you wrote on page 1, Line 6); after the amount write "earned income less than $10,000, Article XV."

Second, if you are married, and your spouse does not work, you may claim personal exemptions for your spouse and dependent children (in addition to a personal exemption for yourself). You must file your tax return on Form 1040NR if you have dependents. Check the box on page 1, Line 3, "Married resident of Canada or Mexico...," and write "1" for yourself in column 7a and "1" for your spouse in column 7b; add any dependent children in box 7c and write your total number of exemptions in box 7 d.

If you are married and your spouse does not work you can also calculate your tax on your earned income using the "Married Filing Jointly" column from the tax table. (The "Married Filing Jointly" column is not included in the abbreviated version of the tax table published in the instruction booklet for Form 1040NR or 1040NR-EZ; you must obtain a copy of the instruction booklet for resident Form 1040, 1040A or 1040EZ to consult the "Married Filing Jointly" column.) The treaty allows you to use the "Married Filing Jointly" table to calculate the tax due on your earned income even though as a nonresident you can not file a joint tax return. Residents of all other countries must use the higher tax "Married Filing Separately" column to calculate their tax. (Please note, however, that you cannot use the "Married Filing Jointly" column to calculate the tax due on unearned income, such as dividends and capital gains; such income is taxed at flat rates.)

Finally, the US-Canada tax treaty allows you to deduct from your gross income contributions that you made to Canadian as well as to US charities. Include any such contributions as itemized deductions on page 3 of Form 1040NR. (If you wish to claim deductions for charitable contributions you must use Form 1040NR; you may not use Form 1040NR-EZ for this purpose.)