Canada Tax Planning if You Live in America

Tax planning can get complicated when two countries are involved. This is true for both Canadian citizens who live in the United States and American citizens who live in the United States but earn income in Canada. This article, with information current in April 2010, will help to sort all this out and explain what each party owes to each country.

Canadian Citizens in the United States

Under the double-tax treaty signed between the US and Canada, Canadian citizens who live and earn their incomes in the United States are not required to pay Canadian income taxes, and their other Canadian tax obligations are reduced. US permanent residents are taxed the same way as US citizens, down to exemptions and tax credits. Non-permanent residents have to pay only federal taxes, but they are not qualified for most exemptions US citizens and permanent residents enjoy.

U.S. Citizens that Earn Income in Canada

U.S citizens who reside in the United States don't have to pay Canadian income taxes so long as they earn less than $10,000 a year in Canadian dollars. They are exempt from the $10,000 limit if they spent less than 183 days in Canada during the given year. Their self-employment income is taxed only in Canada if the American citizen's business is based in Canada. The American citizens have to pay Canadian taxes on investment income from Canadian sources and annuities. U.S. citizens are allowed to use their U.S. income taxes as tax credit when they pay Canadian taxes.

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