G. Thornley (613) 957-2130
November 18, 1986
Dear Sir:
Re: Canada-U.S. Tax Conventions
This is in reply to your letter of August 25, 1966 concerning the taxation of world wide income of Canadians who are deemed residents of the United States. You have not, however, asked a specific question nor have you provided any information as to your residency status or type of income earned either in Canada or in the U.S. In view of the foregoing, our comments will be of a general nature.
Our Comments
Taxation in Canada is based on residency as well as source of income. Residency is a question of fact to be determined after an examination of all relevant facts. Taxpayers who are resident of Canada are subject to income tax on their world income. Taxation in the U.S. is based on citizenship and residency. Citizens of the U.S. are also taxed on their world income. Questions concerning U.S. taxation rules should be referred to the Internal Revenue Service.
As indicated by you, Canada and the U.S. have entered into certain reciprocal tax treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital. Under the former treaty, the Canada-U.S. 1942 treaty, an individual who was considered resident or deemed resident of both Canada and the U.S. received relief from double taxation by virtue of foreign tax credits allowed by the taxing authorities of the respective governments. The exact details of the credit depended on the relevant circumstances in each particular taxation year of the taxpayer.
Under the present treaty, the Canada-U.S. 1980 treaty, there are "tie breaker" rules that come into play when an individual is considered to be resident in both countries in a particular year. These tie breaker rules are used to determine the residency status of the individual and they generally overrule Canada and U.S. residency rules.
By way of clarification, for the years 1977 through to 1981 which are the ones you are specifically concerned about, relief from double taxation is provided by way of foreign tax credits, thus the statement in the third paragraph of your letter to the effect that "green card" resident aliens of the U.S. must declare their world wide income solely in the U.S. is not correct. Dual residency individuals would have to file returns reporting their world wide income in both countries. In connection with the foreign tax credits which may be claimed by the taxpayer in filing his Canadian tax return we refer you to Interpretation Bulletin IT-270R - "Foreign Tax Credits", a copy of which is enclosed for your information.
We trust our comments will prove helpful.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch