Future Developments

For the latest information about developments 

related to Pub. 597, such as legislation enacted 

after it was published, go to www.irs.gov/

pub597. 

What's New

Under Revenue Procedure 2014-55, 2014-44 

I.R.B. 753, available at www.irs.gov/irb/

2014-44_IRB/ar10.html, there are new 

procedures for electing to defer U.S. tax on 

undistributed income from certain Canadian 

retirement plans (including RRSPs and RRIFs). 

Form 8891 is no longer required to make the 

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 income tax treaty between the United States and 

Canada. It discusses a number of treaty provisions 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 income from the United States may also refer to 

this publication to see if a treaty provision affects their U.S. tax liability.

This publication does not deal with 

Canadian income tax laws; nor does it 

provide Canada's interpretation of 

treaty articles, definitions, or specific terms not 

defined in the treaty itself. For questions regarding 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 January 1, 2009. In this publication, the term “article” refers to the particular article of the treaty, 

as amended.

Application of Treaty

The benefits of the income tax treaty are generally provided on the basis of residence for income 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 income than if no treaty was in effect. Article IV 

provides definitions of residents of Canada and 

the United States, and provides specific criteria 

for determining your residence (a tie-breaker 

CAUTION

!

Department 

of the 

Treasury

Internal 

Revenue 

Service

Publication 597

(Rev. October 2015)

Cat. No. 46597M

Information on

the United

States–Canada

Income Tax

Treaty

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Oct 07, 2015
rule) if both countries consider you to be a resident under their domestic tax laws (a dual-resident taxpayer).

Dual-resident taxpayers who are Canadian 

residents under a tie-breaker rule. If you 

are a dual-resident taxpayer because you have 

a U.S. green card but you determine under the 

tie-breaker rule that you are a resident of Canada, you may claim treaty benefits and compute 

your U.S. income tax as a nonresident alien. 

But you must file a U.S. income tax return by 

the due date (including extensions) using Form 

1040NR or Form 1040NR-EZ. You must also 

attach a fully completed Form 8833, 

Treaty-Based Return Position Disclosure Under 

Section 6114 or 7701(b). For more information, 

see Pub. 519, U.S. Tax Guide for Aliens.

Dual-resident taxpayers who are not Canadian residents under a tie-breaker rule. If 

you are a dual resident of the United States and 

a third country and derive income from Canada, 

you can only claim treaty benefits from Canada 

if you have a substantial presence, permanent 

home or habitual abode in the United States, 

and your personal and economic relations are 

closer to the United States than to any third 

state.

If you are a U.S. citizen or green card holder 

living in Canada, you still have to file a Form 

1040 and report your worldwide income because of the “saving clause” in Article XXIX(2), 

which allows the United States to tax its citizens 

and residents as if the treaty had not entered 

into effect. There are limited exceptions to the 

saving clause, which means certain types of income may be exempt from tax in the United 

States. Exceptions to the saving clause can be 

found in Article XXIX, paragraph 3.

Special foreign tax credit rules for U.S. citizens residing in Canada. If you are a U.S. 

citizen and a resident of Canada, special foreign tax credit rules may apply to relieve double 

tax on income from the United States. See Article XXIV(3), (4) and (5). For more information 

about foreign tax credit rules generally, see Income Tax Credits, later.

Example. As a U.S. citizen residing in Canada, you have dividend income from a U.S. corporation. Canada will tax you on your worldwide 

income, including your U.S. dividend income. 

As a resident of Canada under the treaty you 

can claim a reduced withholding rate from the 

United States on the dividend income (15%) 

rather than 30%, and Canada generally allows 

you to deduct the U.S. withholding tax from your 

Canadian tax on that income. However, you still 

need to file a U.S. income tax return and report 

your worldwide income, and pay any residual 

tax to the United States, to the extent it exceeds 

the U.S. tax withheld and the Canadian tax paid 

with respect to the income.

Income from self-employment (Article VII). 

Income from services performed (other than 

those performed as an employee) are taxed in 

Canada if they are attributable to a permanent 

establishment in Canada. This income is 

treated as business profits, and taxable on a net 

basis in Canada in accordance with Article 

VII(3).

If you carry on (or have carried on) business 

in Canada through a permanent establishment, 

Canada may tax the profits the permanent establishment might be expected to make if it 

were a distinct and separate person. The business profits attributable to the permanent establishment include only those profits derived from 

assets used, risks assumed, and activities performed by the permanent establishment.

You may be considered to have a permanent establishment if you meet certain conditions. For more information, see Article V (Permanent Establishment) and Article VII 

(Business Profits).

Services permanent establishment (Article 

V Paragraph 9). Under paragraph 9 of Article 

V, if you, or your enterprise, provide services in 

Canada, you may be treated as providing them 

through a permanent establishment in Canada 

even if you do not have a fixed base in Canada 

from which you operate. This rule applies, however, only if:

1. You are present in Canada for more than 

183 days in a 12-month period, and, during that period or periods, more than 50 

percent of your gross active business revenues consist of income derived from your 

services performed in Canada; or

2. Your enterprise provides services in Canada for an aggregate of 183 days or more 

in any 12-month period with respect to the 

same or connected project for customers 

who are either residents of Canada or who 

maintain a permanent establishment in 

Canada and your services are provided in 

respect of that permanent establishment. 

This rule applies to tax years beginning after January 1, 2010.

Personal Services

A U.S. citizen or resident who is temporarily 

present in Canada during the tax year is exempt 

from Canadian income taxes on pay for services performed, or remittances received from 

the United States, if the citizen or resident qualifies under one of the treaty exemption provisions set out below.

Income from employment (Article XV). Income U.S. residents receive for the performance of dependent personal services in Canada 

(except as public entertainers) is exempt from 

Canadian tax if it is not more than $10,000 in 

Canadian currency for the year. If it is more than 

$10,000 for the year, it is exempt only if:

1. The residents are present in Canada for 

no more than 183 days in any 12-month 

period beginning or ending in the year 

concerned, and

2. The income is not paid by, or on behalf of, 

a Canadian resident and is not borne by a 

permanent establishment in Canada.

Whether there is a permanent establishment in Canada is determined by 

the rules set forth in Article V.

TIP

Example. You are a U.S. resident employed under an 8-month contract with a Canadian firm to install equipment in their Montreal 

plant. During the calendar year you were physically present in Canada for 179 days and were 

paid $16,500 (Canadian) for your services. Although you were in Canada for not more than 

183 days during the year, your income is not exempt from Canadian income tax because it was 

paid by a Canadian resident and was more than 

$10,000 (Canadian) for the year.

Pay received by a U.S. resident for work 

regularly done in more than one country as an 

employee on a ship, aircraft, motor vehicle, or 

train operated by a U.S. resident is exempt from 

Canadian tax.

Income from self-employment (Article VII). 

Income from services performed (other than 

those performed as an employee) are taxed in 

Canada if they are attributable to a permanent 

establishment in Canada. This income is 

treated as business profits, and deductions similar to those allowed under U.S. law are allowable.

If you carry on (or have carried on) business 

in both Canada and the United States, the business profits are attributable to each country 

based on the profits that the permanent establishment might be expected to make if it were a 

distinct and separate person engaged in the 

same or similar activities. The business profits 

attributable to the permanent establishment include only those profits derived from assets 

used, risks assumed, and activities performed 

by the permanent establishment.

You may be considered to have a permanent establishment if you meet certain conditions. For more information, see Article V (Permanent Establishment) and Article VII 

(Business Profits).

Public entertainers (Article XVI). The provisions under income from employment or income from self-employment do not apply to 

public entertainers (such as theater, motion picture, radio, or television artistes, musicians, or 

athletes) from the United States who receive 

more than $15,000 in gross receipts in Canadian currency, including reimbursed expenses, 

from their entertainment activities in Canada 

during the calendar year. However, this provision for public entertainers does not apply (and 

the other provisions will apply) to athletes participating in team sports in leagues with regularly scheduled games in both the United States 

and Canada.

Compensation paid by the U.S. Government (Article XIX). Wages, salaries, and similar income (other than pensions) paid to a U.S. 

citizen by the United States or any of its agencies, instrumentalities, or political subdivisions 

for discharging governmental functions are exempt from Canadian income tax.

The exemption does not apply to pay for 

services performed in connection with any trade 

or business carried on for profit by the United 

States, or any of its agencies, instrumentalities, 

or political subdivisions.

Students and apprentices (Article XX). A 

full-time student, apprentice, or business 

Page 2 Publication 597 (October 2015)
trainee who is in Canada to study or acquire 

business experience is exempt from Canadian 

income tax on remittances received from any 

source outside Canada for maintenance, education, or training. The recipient must be or 

must have been a U.S. resident immediately 

before visiting Canada.

An apprentice or business trainee can claim 

this exemption only for a period of one year 

from the date the individual first arrived in Canada for the purpose of training.

Pensions, Annuities,

Social Security, and

Alimony

Under Article XVIII, pensions and annuities from 

Canadian sources paid to U.S. residents are 

subject to tax by Canada, but the tax is limited 

to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an 

annuity). Canadian pensions and annuities paid 

to U.S. residents may be taxed by the United 

States, but the amount of any pension included 

in income for U.S. tax purposes may not be 

more than the amount that would be included in 

income in Canada if the recipient were a Canadian resident.

Pensions. A pension includes any payment 

under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments 

under a sickness, accident, or disability plan. It 

includes pensions paid by private employers 

and the government for services rendered.

Pensions also include payments from individual retirement arrangements (IRAs) in the 

United States, registered retirement savings 

plans (RRSPs) and registered retirement income funds (RRIFs) in Canada.

Pensions do not include social security benefits.

Roth IRAs. A distribution from a Roth IRA 

is exempt from Canadian tax to the extent it 

would be exempt from U.S. tax if paid to a U.S. 

resident. In addition, you may elect to defer any 

tax in Canada on income accrued within the 

Roth IRA but not distributed by the Roth IRA. 

However, you cannot defer tax on any accruals 

due to contributions made after you become a 

Canadian resident.

Tax-deferred plans. Generally, income 

that accrues in certain Canadian retirement 

plans (including RRSPs or RRIFs) is currently 

subject to U.S. tax, even if it is not distributed. 

However, a U.S. citizen or resident can elect to 

defer U.S. tax on income accrued in the plan 

until the income is distributed.

The election procedures differ depending on 

whether an individual qualifies as an “eligible individual” as described under Section 4.01 of 

Revenue Procedure 2014-55 available at 

www.irs.gov/irb/2014-44_IRB/ar10.html. A beneficiary of a Canadian retirement plan is an “eligible individual” if the individual:

Is or at any time was a U.S. citizen or resident (within the meaning of section 

7701(b)(1)(A)) while a beneficiary of the 

plan;

Has satisfied any requirement for filing a 

U.S. federal income tax return for each tax 

year during which the individual was a U.S. 

citizen or resident;

Has not reported as gross income on a 

U.S. federal income tax return the earnings 

that accrued in, but were not distributed 

by, the plan during any tax year in which 

the individual was a U.S. citizen or resident; and

Has reported any and all distributions received from the plan as if the individual 

had made an election under Article XVIII(7) 

of the Convention for all years during 

which the individual was a U.S. citizen or 

resident.

Eligible individuals are treated as having 

made the election in the first year in which they 

would have been entitled to defer U.S. tax on 

the undistributed income from the plan.

Filing Form 8891 (now obsolete) is no longer required to make the election. An individual 

who has previously made the election on Form 

8891 or under the procedures set forth in Revenue Procedure 2002-23 (superseded by Revenue Procedure 2014-55) is not required to file 

Form 8891 or a similar statement for tax years 

after December 31, 2012.

Individuals who have previously reported 

the undistributed income accrued in a Canadian 

retirement plan (including RRSP or RRIF) on a 

U.S. federal income tax return are not eligible 

individuals as described in Revenue Procedure 

2014-55 , and must continue to report the undistributed income accrued in their Canadian 

retirement plan on their U.S. federal income tax 

return and pay U.S. tax on the undistributed income. If these individuals want to make the 

election, they must seek approval from the IRS.

Revenue Procedure 2014-55 also provides 

guidance concerning information reporting with 

respect to interests in certain Canadian retirement plans (including RRSPs and RRIFs). However, the revenue procedure does not affect 

any other reporting obligations that a beneficiary or annuitant of a Canadian retirement plan 

(including RRSPs and RRIFs) may have, including the requirement to file a Form 8938, 

Statement of Specified Foreign Financial Assets, and FinCEN Form 114, Report of Foreign 

Bank and Financial Accounts (FBAR).

For more information on the election and information reporting requirements, see Revenue 

Procedure 2014-55. Information on FinCEN 

Form 114 is available at 

bsaefiling.fincen.treas.gov/

NoRegFBARFiler.html.

Annuities. An annuity is a stated sum payable 

periodically at stated times, during life, or during 

a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). Annuities do not include:

Non-periodic payments, or

An annuity the cost of which was deductible for tax purposes.

Special rules. Special rules apply to pensions 

and annuities with respect to:

Short-term assignments,

Cross-border commuters, and

Individuals who participate in a Canadian 

qualifying plan.

Generally, distributions in such cases are 

deemed to be earned in the country in which 

the plan is established, without regard to where 

the services were rendered.

Social security benefits. U.S. social security 

benefits paid to a resident of Canada are taxed 

in Canada as if they were benefits under the 

Canada Pension Plan, except that 15% of the 

amount of the benefit is exempt from Canadian 

tax.

Alimony. Alimony and similar amounts (including child support payments) from Canadian 

sources paid to U.S. residents are exempt from 

Canadian tax. For purposes of U.S. tax, these 

amounts are excluded from income to the same 

extent they would be excluded from income in 

Canada if the recipient was a Canadian resident.

Investment Income

From Canadian

Sources

The treaty provides beneficial treatment for certain items of Canadian source income that result from an investment of capital.

Dividends (Article X). For Canadian source 

dividends received by U.S. residents, the Canadian income tax generally may not be more 

than 15%.

A 5% rate applies to intercorporate dividends paid from a subsidiary to a parent corporation owning at least 10% of the subsidiary's 

voting stock. However, a 10% rate applies if the 

payer of the dividend is a nonresident-owned 

Canadian investment corporation.

These rates do not apply if the owner of the 

dividends carries on, or has carried on, a business in Canada through a permanent establishment and the holding on which the income is 

paid is effectively connected with that permanent establishment.

Interest (Article XI). Generally, Canadian 

source interest received by U.S. residents is exempt from Canadian income tax.

The exemption does not apply if the owner 

of the interest carries on, or has carried on, a 

business in Canada through a permanent establishment and the debt on which the income 

is paid is effectively connected with that permanent establishment.

Gains from the sale of property (Article 

XIII). Generally, gains from the sale of personal 

property by a U.S. resident having no permanent establishment in Canada are exempt from 

Canadian income tax. However, the exemption 

from Canadian tax does not apply to gains realized by U.S. residents on Canadian real property, and on personal property belonging to a 

permanent establishment in Canada.

Publication 597 (October 2015) Page 3
If the property subject to Canadian tax is a 

capital asset and was owned by the U.S. resident on September 26, 1980, not as part of the 

business property of a permanent establishment in Canada, generally the taxable gain is 

limited to the appreciation after 1984.

Royalties (Article XII). The following are exempt from Canadian tax:

1. Copyright royalties and other like payments for the production or reproduction 

of any literary, dramatic, musical, or artistic 

work (other than payments for motion pictures and works on film, videotape, or 

other means of reproduction for use in 

connection with television, which may be 

taxed at 10%),

2. Payments for the use of, or the right to 

use, computer software,

3. Payments for the use of, or the right to 

use, any patent or any information concerning industrial, commercial, or scientific 

experience (but not within a rental or franchise agreement), and

4. Payments for broadcasting as agreed to in 

an exchange of notes between the countries.

This rate or exemption does not apply if the 

owner of the royalties carries on, or has carried 

on, a business in Canada through a permanent 

establishment and the right or property on 

which the income is paid is effectively connected with that permanent establishment.

This exemption (or lower rate) does not apply to royalties to explore for or to exploit mineral deposits, timber, and other natural resources.

Other Income

Generally, Canadian source income that is not 

specifically mentioned in the treaty, may be 

taxed by Canada.

Gambling losses. Canadian residents may 

deduct gambling losses in the U.S. against 

gambling winnings in the U.S. in the same manner as a U.S. resident.

Charitable Contributions

United States income tax return. Under Article XXI, you may deduct contributions to certain 

qualified Canadian charitable organizations on 

your United States income tax return. Besides 

being subject to the overall limits applicable to 

all your charitable contributions under U.S. tax 

law, your charitable contributions to Canadian 

organizations (other than contributions to a college or university at which you or a member of 

your family is or was enrolled) are subject to the 

U.S. percentage limits on charitable contributions, applied to your Canadian source income. 

If your return does not include gross income 

from Canadian sources, charitable contributions to Canadian organizations are generally 

not deductible.

Example. You are a U.S. citizen living in 

Canada. You have both U.S. and Canadian 

source income. During your tax year, you contribute to Canadian organizations that would 

qualify as charitable organizations under U.S. 

tax law if they were U.S. organizations.

To figure the maximum amount of the contribution to Canadian organizations that you can 

deduct on your U.S. income tax return, multiply 

your adjusted gross income from Canadian 

sources by the percentage limit that applies to 

contributions under U.S. income tax law. Then 

include this amount on your return along with all 

your domestic charitable contributions, subject 

to the appropriate percentage limit required for 

contributions under U.S. income tax law. The 

appropriate percentage limit for U.S. tax purposes is applied to your total adjusted gross income from all sources.

Qualified charities. These Canadian organizations must meet the qualifications that a 

U.S. charitable organization must meet under 

U.S. tax law. Usually an organization will notify 

you if it qualifies. For further information on 

charitable contributions and the U.S. percentage limits, see Pub. 526, Charitable Contributions.

Canadian income tax return. Under certain 

conditions, contributions to qualified U.S. charitable organizations may also be claimed on 

your Canadian income tax return if you are a 

Canadian resident.

Income Tax Credits

The treaty contains a credit provision (Article 

XXIV) for the elimination of double taxation. In 

general, the United States and Canada both allow a credit against their income tax for the income tax paid to the other country on income 

from sources in that other country.

For detailed discussions of the U.S. income 

tax treatment of tax paid to foreign countries, 

see Pub. 514, Foreign Tax Credit for Individuals.

Competent Authority 

Assistance

Under Article XXVI, a U.S. citizen or resident 

can request assistance from the U.S. competent authority when the actions of Canada, the 

United States, or both, potentially result in double taxation or taxation contrary to the treaty. 

The U.S. competent authority may then consult 

with the Canadian competent authority to determine if the double taxation or denial of treaty 

benefits in question can be avoided. If the competent authorities are not able to reach agreement in a case, binding arbitration proceedings 

may apply.

Generally, you should file a competent authority request promptly after a competent authority issue arises or is likely to arise. Under 

certain circumstances, a competent authority 

request or a treaty notification must be filed 

within a certain time limit.

For requirements to file, and information that 

should be included in, a competent authority request, see Revenue Procedure 2015-40, 

2015-35 I.R.B. 236, available at www.irs.gov/

irb/2015-35_IRB/ar10.html#d0e1688. Additional information is available at www.irs.gov/

Individuals/International-Taxpayers/TaxTreaties.

Your competent authority request should be 

addressed to:

Deputy Commissioner (International)

Large Business and International Division

Internal Revenue Service

1111 Constitution Ave., NW

Washington, D.C. 20224

SE:LB:IN:ADCI:TAIT:M4-365

(Attention: TAIT)

All mail should be sent to this mailing address, including regular mail, express mail, 

overnight mail, and mail sent by USPS, FedEx, 

UPS, or any other carrier.

In addition to a timely request for assistance, 

you should take the following measures:

File a timely protective claim for credit or 

refund of U.S. taxes on Form 1040X, Form 

1120X, or amended Form 1041, whichever 

is appropriate. This will, among other 

things, give you the benefit of a foreign tax 

credit in case you do not qualify for the 

treaty benefit in question. For figuring this 

credit, attach either Form 1116, Foreign 

Tax Credit (Individual, Estate, or Trust), or 

Form 1118, Foreign Tax Credit—Corporations, as appropriate. Attach your protective claim to your request for competent 

authority assistance.

Take appropriate action under Canadian 

procedures to avoid the lapse or termination of your right of appeal under Canadian 

income tax law.

Text of Treaty

You can get the text of the U.S.-Canada income 

tax treaty at IRS.gov. Enter “Tax Treaties” in the 

search box. Click on “United States Income Tax 

Treaties–A to Z.”

How To Get Tax Help

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways.

You can access IRS.gov 24 hours a 

day, 7 days a week.

You can call the IRS for help at (267) 

941-1000 (not a toll-free call).

Page 4 Publication 597 (October 2015)
For answers to technical or account 

questions, you can write to:

Internal Revenue Service

International Section

Philadelphia, PA 19255-0525

Canadian Taxation

You can get information on Canadian taxation 

from the Canada Revenue Agency.

You can access the Canada Revenue 

Agency at www.cra-arc.gc.ca.

You can contact the Canada Revenue 

Agency for help at 1-800-959-8281 

(from anywhere in Canada and the 

United States).

Publication 597 (October 2015) Page 5