US Tax for Canadians
Canadian residents with US rental property, US employment income, US investments, or US business interests have US tax filing obligations — regardless of where they live. TYM handles Form 1040-NR preparation, ITIN applications, treaty benefit claims, and FIRPTA compliance.
The US-Canada Tax Treaty reduces withholding on many income types — dividends, interest, royalties — but treaty benefits are not automatic. They must be claimed on Form W-8BEN or Form 1040-NR, and the interaction between treaty provisions and US domestic law requires practitioners who work in both systems. TYM's CPAs are licensed in both Canada and the United States.
When Canadians Must File a US Return
The obligation to file a US return arises from the nature and source of your income — not from a dollar threshold. Any of the following creates a US filing obligation for a Canadian resident.
US Rental Property
Canadians who own US rental property are subject to US tax on rental income. Without an election to treat the income as effectively connected (ECI), the US payer must withhold 30% of gross rent. Filing Form 1040-NR allows you to deduct expenses — mortgage interest, property taxes, depreciation — and pay tax only on net income.
US Employment or Business Income
Wages earned for services performed in the United States are US-source income, taxable in the US regardless of where you live. Canadians working in the US — even temporarily — generally must file Form 1040-NR for the portion of income attributable to US workdays.
US Dividends, Interest, or Royalties
US-source dividends, interest, and royalties paid to Canadian residents are subject to US withholding tax. The default rate is 30%, but the US-Canada Tax Treaty reduces dividends to 15% (5% for corporate shareholders with ≥10% ownership), interest to 0%, and royalties to 0%. These treaty rates must be claimed by filing Form W-8BEN with the US payer.
Sale of US Real Estate (FIRPTA)
When a Canadian sells US real property, the buyer is required to withhold 15% of the gross sale price under FIRPTA (Foreign Investment in Real Property Tax Act). Filing Form 1040-NR reports the actual gain and may result in a refund if the withholding exceeds the tax owed. A withholding certificate (Form 8288-B) can reduce withholding before closing.
US Estate or Trust Income
Canadians who receive distributions from US estates or trusts, or who are beneficiaries of US-sited assets, may have US income tax and reporting obligations.
US-Canada Treaty Withholding Rates for Canadians
Treaty rates apply to Canadian residents who file Form W-8BEN with the US payer. Without W-8BEN, the default 30% rate applies.
| Income Type | Default Rate | Treaty Rate | How to Claim |
|---|---|---|---|
| Dividends (portfolio) | 30% | 15% | Form W-8BEN |
| Dividends (≥10% corporate) | 30% | 5% | Form W-8BEN-E |
| Interest | 30% | 0% | Form W-8BEN |
| Royalties | 30% | 0% | Form W-8BEN |
| Pensions / Annuities | 30% | 15% | Form W-8BEN |
| Rental income (gross) | 30% | 30%* | Net income election |
| US real estate sale (FIRPTA) | 15% | 15%† | Form 8288-B |
* Rental income: elect to treat as ECI on Form 1040-NR to deduct expenses; otherwise 30% withholding on gross rent applies. † FIRPTA withholding is 15% of gross sale price; reduced withholding certificate available via Form 8288-B based on estimated actual tax.
US Rental Property: Gross vs. Net Election
Canadians who own US rental property face a choice: allow the default 30% withholding on gross rent, or elect to treat the rental income as effectively connected income (ECI) on Form 1040-NR. The ECI election allows you to deduct all ordinary and necessary rental expenses — mortgage interest, property taxes, insurance, repairs, depreciation — and pay US tax only on net income at graduated rates. For most rental properties, the ECI election results in significantly lower US tax.
Without Election (Default)
- 30% withholding on gross rent
- No deductions allowed
- Property manager must withhold and remit
- Often results in over-payment of US tax
- Refund requires filing Form 1040-NR
With ECI Election (Recommended)
- Tax on net income at graduated rates
- Deduct mortgage interest, taxes, depreciation
- Depreciation recapture on sale (25%)
- Must file Form 1040-NR annually
- Generally results in lower US tax
ITIN: Individual Taxpayer Identification Number
Canadians who must file a US return but do not have a US Social Security Number need an ITIN (Individual Taxpayer Identification Number). The ITIN is issued by the IRS for tax processing purposes only — it does not authorize work in the US or provide eligibility for Social Security benefits.
TYM is an IRS Certified Acceptance Agent (CAA). This designation allows TYM to verify your identity documents in person and certify them to the IRS — eliminating the need to mail your original passport to the IRS, which can take several months to return. TYM's CAA status is particularly valuable for Canadians who need an ITIN to close a real estate transaction or to file a time-sensitive return.
When Canadians Need an ITIN
Scope Boundaries
Included
- Form 1040-NR preparation and filing (federal)
- State income tax returns where applicable
- ITIN application (Form W-7) — TYM is an IRS Certified Acceptance Agent
- Form W-8BEN preparation to claim treaty-reduced withholding rates
- Net income election for US rental property (ECI election)
- FIRPTA withholding certificate application (Form 8288-B)
- Refund claims for overwithholding on FDAP income
- Treaty position documentation and disclosure
Not Included
- Canadian T1 income tax return (available as a separate engagement)
- FBAR filing (required for US persons — Canadians generally do not file FBAR)
- US estate tax returns (Form 706-NA) — available as a separate engagement
- Bookkeeping or accounting for US rental property
- US business entity formation or registered agent services
How It Works
TYM reviews all US-source income — rental statements, brokerage 1099s, W-2s for US employment, and sale documents — to identify every filing obligation and withholding recovery opportunity.
For each income type, TYM determines the applicable treaty article, the reduced withholding rate, and any elections required to claim treaty benefits. Form W-8BEN is prepared for submission to US payers.
If you do not have a US Social Security Number, TYM prepares Form W-7 and certifies your identity documents as an IRS Certified Acceptance Agent — eliminating the need to mail original passports to the IRS.
Form 1040-NR is prepared with all applicable schedules, treaty disclosures, and supporting documentation. Returns are filed electronically where available, or by mail to the IRS International Accounts address.
Common Mistakes Canadians Make with US Taxes
Not filing at all
Many Canadians with US rental income or US investments assume their Canadian accountant handles the US side. US filing obligations are separate and must be addressed with the IRS directly.
Missing the 16-month rule
Deductions and credits on Form 1040-NR are lost if the return is filed more than 16 months after the due date. The IRS has the right to deny all deductions on late-filed returns.
Not claiming treaty benefits
Without filing Form W-8BEN with the US payer, the default 30% withholding rate applies. Canadians who have had 30% withheld on dividends or interest can file Form 1040-NR to claim a refund.
Ignoring FIRPTA on property sales
Canadians who sell US real estate without addressing FIRPTA may find the buyer has withheld 15% of the gross sale price. A withholding certificate filed before closing can reduce this to the estimated actual tax.
Using a Canadian accountant for US returns
Canadian CPAs are not licensed to practice before the IRS and may not be familiar with Form 1040-NR, FIRPTA, or treaty elections. US returns require a US-licensed CPA or enrolled agent.
No ITIN before the transaction
Obtaining an ITIN after a real estate transaction or after withholding has occurred delays refunds and creates administrative complications. ITIN applications should be initiated before the triggering event.
US Tax for Canadians — Toronto & Miami
TYM serves Canadian residents with US tax obligations from offices in Toronto and Miami. Toronto's proximity to the US border and the concentration of Canadian investors with US real estate, US equity compensation, and US business interests creates a consistent demand for US tax expertise that most Canadian accounting firms cannot provide. TYM's CPAs are licensed in both jurisdictions.
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Learn moreFAQ: US Tax for Canadians
Do Canadians have to file a US tax return?
Canadians who earn US-source income — rental income, US wages, US dividends or interest, or proceeds from selling US real estate — generally must file Form 1040-NR with the IRS. Canadians with no US-source income generally have no US filing obligation. The threshold is not a dollar amount; the obligation arises from the nature and source of the income.
What is Form 1040-NR?
Form 1040-NR (U.S. Nonresident Alien Income Tax Return) is the US income tax return for non-resident aliens — individuals who are not US citizens or green card holders and have not met the Substantial Presence Test. It reports US-source income, claims applicable deductions and treaty benefits, and calculates the US tax owed or refund due.
What is the US-Canada Tax Treaty and how does it help Canadians?
The Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital (the 'Treaty') reduces US withholding tax on certain income paid to Canadian residents. Key reductions: dividends from 30% to 15% (5% for qualifying corporate shareholders); interest from 30% to 0%; royalties from 30% to 0%. Treaty benefits are not automatic — they must be claimed by filing Form W-8BEN with the US payer, or on Form 1040-NR.
What is FIRPTA and how does it affect Canadians selling US real estate?
FIRPTA (Foreign Investment in Real Property Tax Act) requires the buyer of US real property from a foreign person to withhold 15% of the gross sale price and remit it to the IRS. This withholding is a prepayment of US tax on the gain. Filing Form 1040-NR after the sale reports the actual gain and may result in a refund if the withholding exceeds the tax owed. Before closing, a withholding certificate (Form 8288-B) can reduce the withholding to the estimated tax on the actual gain.
What is an ITIN and do I need one?
An ITIN (Individual Taxpayer Identification Number) is a tax processing number issued by the IRS to individuals who are not eligible for a Social Security Number. Canadians who must file a US return but do not have a SSN need an ITIN. TYM is an IRS Certified Acceptance Agent, which means TYM can certify your identity documents — you do not need to mail your original passport to the IRS.
Talk to a CPA About Your US Tax Obligations
US tax obligations for Canadians are not optional — and the penalties for non-compliance compound over time. Whether you have US rental property, US employment income, or US investments, TYM can assess your obligations, recover overwithholding, and ensure your US returns are filed correctly.
Schedule a US Tax ConsultationThe content on this page is for informational purposes only and does not constitute professional tax advice. US tax obligations for Canadian residents depend on individual facts and circumstances. Treaty rates and thresholds are subject to change. Consult a qualified CPA licensed in both Canada and the United States for guidance specific to your situation.
