Vital Features of Canada-US Tax Treaty

Many countries have agreed with other countries in treaties to mitigate the effects of double taxation (Double Tax Avoidance Agreement). Tax treaties may cover income taxes, inheritance taxes; value added taxes, or other taxes. Tax agreements tend to reduce taxes of one treaty country for residents of the other treaty country in order to reduce double taxation of the same income.

Canada and the United States of America have strong trade relations and for that reason there are many people who cross borders for their work. So, to facilitate the ease in which citizens of one country could work and earn in the other country and in building relations between the two countries, the need for the Canada-US tax treaty was recognized to be an important step. Due to the many benefits the tax agreement has to offer, we have a lot of corporations that are based in US who have interests in Canada and many Canadian corporations have branches and business interests in the US.

Canada has entered into tax agreements with a lot of countries, but none is considered more imperative that the Canada-US tax treaty. On September 26, 1980, the first version of the current treaty was signed.

As per the tax treaties between Canada and US, income that is generated from personal services by a person who is a non-resident of one country and the resident of the other can be exempted provided the conditions that are mentioned in the treaty are met. A non-resident can avail some of the exemptions and that are;

•    If the total payment that is made to the non-resident is less than $10,000 in a tax year, an employee that is providing personal services in the other country is exempted from tax.

•    A person is also exempt from paying tax if he is earning more than $10,000, but has spent less than 183 days over a period of 12 months in the country.

•   Public entertainers are exempted from this and there are special rules that are drafted for them.

Any income that is generated from self employment is considered to be business profits and is taxed by the US or Canada government if it can be attributed to any permanent establishment in the country.

Income that is gained out of periodic pensions or annuities that are paid to a non-resident from a source within the nonresident county will be taxed by the nonresident county. However, according to the Canada-US tax treaty the maximum tax percentage that can apply for such income is 15% of the gross amount. There are many more exemptions that one can get out of the tax treaty.

Source by Ken Donaldson

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