Canadians Holding U.S. Entities/Property/Income
As a Canadian resident, you are required to report and pay tax on your worldwide income, including U.S. sourced income. This income may be subject to U.S. Withholding Tax for non-U.S. residents, generally at a rate of 15% for Canadians. To avoid double taxation, Canada’s tax laws generally allow you to claim a Foreign Tax Credit (FTCs) for U.S. taxes.
Canadians Holding U.S. Entities
- U.S. Corporation (C-Corp): For Canadians owning shares in a U.S. corporation (CCorp), the corporation itself is taxed on its profits at the U.S. corporate tax rate. However, any dividends distributed are subject to U.S. withholding tax and must then be reported as income on the Canadian tax return.
- U.S. Limited Partnerships: LLCs and partnerships are typically "pass-through" entities for U.S. tax purposes, meaning income is passed through to the owners, who report it on their U.S. individual returns, even if they are non-residents. However, the CRA treats U.S. LLCs and limited partnerships as corporations for Canadian tax purposes. As a result, Canadian members of a U.S. LLC are not required to report profits directly on their Canadian personal tax returns and are instead subject to corporate tax treatment.
Canadians Holding U.S. Property
Canadians who hold U.S. situs property, including investments held in registered accounts, may be subject to U.S. estate tax if the total value of their U.S. assets exceeds USD $60,000. In such cases, a U.S. estate tax return must be filed with the Internal Revenue Service (IRS) upon the individual's death, even if no tax is ultimately owed.
For Canadian tax returns, foreign properties valued over CAD 100,000 must be disclosed on the personal tax return. There are no additional tax implications unless they generate income.
Canadians with U.S. Rental Income
U.S. rental income is subject to U.S. income tax. There are two options for reporting the tax:
- 30% Withholding: A flat 30% tax on gross rental income, withheld at source.
- File a Non-Resident U.S. Tax Return: Elect to file a non-resident U.S. tax return and pay taxes on net rental income after deductions on allowable expenses
Rental income must also be reported on the Canadian tax return. It is taxed at net rental income after deducting applicable expenses such as utilities and at the individual’s marginal rate.
Canadians with U.S. Interest Income
Interest income from U.S. financial institutions, such as U.S. banks, credit unions, and insurance companies, is generally exempt from taxation for non-U.S. residents, unless it is connected to a U.S. trade or business. Similarly, interest income from portfolio investments, such as corporate debt, is typically also not subject to U.S. withholding tax.
In Canada, U.S. interest income must be reported as part of an individual's total taxable income and is taxed at the applicable marginal tax rate.
Canadians with U.S. Capital Gains
Generally, U.S. capital gains are not subject to U.S. withholding tax for non-residents, including Canadians. Therefore, if a Canadian sells U.S. securities at a gain, they typically won’t owe U.S. capital gains tax.
However, the capital gains must be reported on Canadian tax returns, with 50% of the capital gain taxable at your marginal tax rate. Starting June 25, 2024, the capital gains inclusion rate will increase from 50% to two-thirds on gains exceeding CAD 250,000 for individuals.
Canadians with U.S. Dividend Income
Dividends paid by U.S. corporations to Canadian residents are subject to a 15% U.S. withholding tax. This tax is withheld at the source by the U.S. corporation paying the dividend and is remitted directly to the IRS.
In Canada, U.S. dividends received are also considered foreign income and are taxed based on the individual’s overall tax bracket.
Works Cited
“Canadian Ownership of U.S. Real Property.” BMO Private Wealth, privatewealthinsights.bmo.com/en/insights/wealth-planning-and-strategy/canadian-ownership-of-usrealproperty/. Accessed 4 Nov. 2024.
Cender, David. “Tax Considerations for Canadians Purchasing U.S. Real Estate.” MNP.Ca, MNP,16 Dec. 2020, www.mnp.ca/en/insights/directory/updated-tax-considerations-forcanadians-purchasing-us-real-estate. Accessed 4 Nov. 2024.
“Federal Income Tax Withholding and Reporting on Other Kinds of U.S. Source Income Paid to Nonresidents.” Internal Revenue Service, www.irs.gov/individuals/internationaltaxpayers/federal-income-tax-withholding-and-reporting-on-other-kinds-of-us-sourceincome-paid-to-nonresidents. Accessed 6 Nov. 2024.
Hayes, Adam. “What Is a Flow-through (Pass-through) Entity, Types, Pros & Cons.” Investopedia, Investopedia, www.investopedia.com/terms/f/flow-through.asp. Accessed 4 Nov. 2024.“U.S. Estate Tax for Canadians Income Tax Considerations.” BMO Private Wealth, privatewealth-insights.bmo.com/en/insights/estate-trust/us-estate-tax-for-canadiansincome-tax-considerations/. Accessed 5 Nov. 2024.
“US Llcs Cause Canadian Tax Problems for 2024 - Faber.” Faber LLP, 1 Oct. 2024, faberllp.ca/us-llcs-cause-canadian-tax-problems/. Accessed 4 Nov. 2024.
