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Publication 597

Information on  
the United  
Income Tax  


Future Developments(p1)

For the latest information about developments related to Pub. 597, such as legislation enacted after it was published, go to

What's New(p1)

Under Revenue Procedure 2014-55, 2014-44 I.R.B. 753, available at, 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.


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
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(p1)

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 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. (p2)

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.(p2)

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.(p2)

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.


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). (p2)

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).(p2)

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.