To eliminate or to reduce double taxation, the United States has entered into tax treaties with many countries. One of which is Canada. Due to the proximity of this neighboring country, the US-Canada Tax Treaty was signed in 1980 and has since been amended by five protocols. To provide relief from taxation in both the United States and Canada for income earned by Canadians is one of the aims of the US-Canada Treaty. To expound, US citizens and Canadian residents are taxed on their world income. If not for the treaty, Canadians would pay the US tax on their US income to the Internal Revenue (IRS) and pay again to the Canada Revenue Agency (CRA).
This also works for US residents working in Canada. Whether in Canada or in the United States, both US citizens and Canadian residents report their foreign income regardless where they file a tax return.Determining the US and Canadian Tax law can be challenging which is why getting cross border tax services is a substantial decision. A professional advice from cross border tax services can be acted upon concerning Canadian and United States tax principles.
The treaty ensures that a resident of one country is taxed by each of the two countries on the same income in the same year. Cross border tax services is important for a person who lives in one country and either commutes to work in the other country every day or moves to the other country temporarily to work for a limited period of time. He needs to be able to comply with his tax obligations.
A cross border tax specialist will be able to explain how individuals are taxed. If you are US “green card holder” or a US citizen, pursuant to US law, your income is taxed on a worldwide basis no matter where you reside. Canada, on the other hand, does not tax on a citizenship basis but rather on a residency basis. There are cases when a US citizen who is resident in Canada can be subjected to adverse tax consequences if their affairs are not planned carefully. This is where a cross border tax specialist comes in. A cross border tax specialist can be your asset in assessing your status and how you should file your tax obligations.