How to source income between the U.S. and different countries can be complicated and time consuming for taxpayers who are not familiar with tax regulations and treaties. In general, for U.S. tax purposes, U.S citizens and resident aliens (details) are subject to tax on their worldwide sources of income, while non-resident aliens are subject to tax on income effectively connected with a US trade or business (non-resident aliens may also be taxed on non-effectively connected non-business income, but may be able to appeal to the tax treaty to reduce tax rates).
Whether income is U.S. source or foreign source depends on the type of income, location of the payer, location of the service provided, etc. AG Tax professionals have prepared a brief summary of different types of income that may have sourcing issues depending upon the specific facts and circumstances.
Salary, Wages, Bonus and other Compensation, Business Income, Self-employment Income
• What’s the source? – depends on where the services are performed
Interest Income
• What’s the source? – depends on the residence of the payer
Dividends
• What’s the source? – depends on whether the payer corporation is US or foreign
Rents & Royalties
• What’s the source? – depends on the location of the property that generates the income
Sale of Personal Property
• What’s the source? – depends on the residence of the seller
Sale of Real Property
• What’s the source? – depends on the location of the property
Distributions from Pension Attributable to Contributions
• What’s the source? – depends on where services were performed to accrue benefit
Investment Earnings on Pension Contributions
• What’s the source? – depends on the location of pension trust
Income sourcing is a critical part of preparing a cross border tax return. If the source of income is not determined and reported correctly, credits could be affected that negatively impact the taxpayer’s tax liability. We strongly advise taxpayers with cross border tax issues to consult a qualified cross border tax practitioner on how to properly report and source different types of income.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax associates are dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
