New Information on US – Canada Income Tax Treaty

There are a LOT of people from Canada in Denver, Colorado where I spend the majority of my time as a student of the US tax code. Many dual citizens got stung by the reasonably new US FBAR tax laws and there were some tragic cases that filtered there way up to my desk. Having grown up in Wisconsin and consider myself a Minnesotan I truly believe that anyone hearty enough to live north of Lake Michigan has to be by definition a good spirit. I personally love most everything about Canada from the cold winters to the oxygen rich summers.

With that I write today to my Canadian friends and clients to inform them that the IRS recently updated Publication 597, Information on the United States – Canada Income Tax Treaty. This publication discusses a number of treaty provisions that often apply to U.S. citizens or residents who may be liable for Canadian tax. I suggest reading it.

Treaty provisions are generally speaking reciprocal in that the same rules tend to apply to both treaty countries meaning that my Canadian friends who receive income in the US may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. This publication does not deal with Canadian income tax laws. The tax treaty with Canada can be accessed in its entirety by clicking here as you see fit.

The most important point to make in this post is that under Article XXVI dual citizens may request US ‘competent authority assistance’ when actions of either or both countries potentially result in either double taxation or taxation contrary to the treaty.

What happens with this request is the ‘competent authorities’ from each country engage each other for a gawd awful time wasting process to determine if the double taxation or denial of treaty benefits in question can be avoided. If agreement is not reached binding arbitration may apply. Because it is so time intensive it is important that the request for authority be made without delay to avoid administrative, procedural or legal barriers of each countries taxing authorities. Prevailing in the process requires patience, determination and timely responses but it is possible.

For information that you should include with your competent authority assistance request go to IRB 2006-49. Mail the request to:

Deputy Commissioner (International), Large Business and International Division, IRS

1111 Constitution Avenue NW

Routing M4-365

Washington, DC 20224

(Attention: TAIT).