The U.S. and Canadian tax systems have a different basis for taxation. The U.S. taxes “U.S. persons and Citizens”, which means if you hold citizenship or a green card, you automatically have a filing obligation to report worldwide income to the U.S. This obligation is required even if you do not live in the United States.
The Canadian system calls for taxation of “Residents”, which is different from permanent residents as this means anyone who lives in Canada and has primary residential ties to the country (immediate family and/or a residence) and/or secondary residential ties to the country (drivers licenses, bank accounts, investments, employment etc.) can be considered a resident and has a filing obligation to submit a personal tax return to include worldwide income. The determination of the residency status of an individual is a question of fact and circumstances. The Canadian system also taxes individuals who are not “residents” but who sojourn in Canada for 183 days or more in a taxation year as a resident. Such individuals as deemed residents for the year must file a personal tax return to include worldwide income.
This means a U.S. citizen who is residing in Canada has a tax filing obligation in both nations. If you are a U.S. citizen and are a full-time university student in Canada, you will likely be considered a Canadian resident. You will have a filing obligation in both countries. If you have co-op terms in Canada, Canada as the country where the income is earned likely has first right to taxation (you will pay taxes in Canada on that income). The U.S. will be required to grant a foreign tax credit on this income to avoid double taxation (claimed on your US personal tax return when filed). The foreign tax credit calculations on the Canadian and U.S. returns for an individual with an obligation to file in both countries can be complicated and an advisor with experience filing such returns should be consulted.
- Simran, Young Tax Professional and Christine, MAcc alum, Young Tax Professional