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Taxation to the IRS for a Canadian national

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Taxation to the IRS for a Canadian national

August 3, 2016
1:57 pm

Michael D.

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August 3, 2016

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Hi all. I am a Canadian, living and working in Montreal. I plan to purchase a certificate of deposit in the US and I am wondering how do I go about paying taxes to the IRS once the certificate starts earning interest. Anybody in a similar situation? Thank you in advance.

August 3, 2016
4:57 pm

AltaRed

BC Interior

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October 27, 2013

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You pay Canadian taxes on your CD interest income because you have to declare your worldwide income on your T1 General.

As for US taxes, it is my understanding that IF there is US withholding tax due, the financial institution will automatically withhold the required amount (note that you will need to file a W8BEN with that financial institution). I say IF because most interest bearing accounts like savings accounts and CDs won't require any withholding as a result of the Can-US tax treaty.

If you do pay any tax to the IRS, then you can recover it as a Foreign Tax Credit on your Canadian T1 General.

August 3, 2016
5:47 pm

Norman1

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The US Internal Revenue Code exempts all non-resident aliens from tax on bank deposit interest.

This is from IRS: Certain Types of Nontaxable Interest Income:

Nonresident aliens are not taxed on certain kinds of interest income as follows, per Internal Revenue Code subsections 871(h) and (i), provided that such interest income arises from one of the following sources:

1. A U.S. bank
2. A U.S. savings and loan association
3. A U.S. credit union
4. A U.S. insurance company
5. Portfolio Interest (Described in Chapter 3 "Exclusions From Gross Income" – "Interest Income" – "Portfolio interest" of Publication 519, U.S. Tax Guide for Aliens)

If the nonresident alien individual uses Form 1040NR to report his income, then such nontaxable interest income shall not be reported anywhere on Form 1040NR except in response to question L on page 5 of Form 1040NR.

If the nonresident alien individual uses Form 1040NR-EZ to report his income, then such nontaxable interest income shall not be reported anywhere on Form 1040NR-EZ. The erroneous reporting of such interest income on Form 1099 by one of the institutions listed above shall not cause such interest income to be included in the gross income of the nonresident alien recipient if such recipient has filed the proper income tax return.

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