What is the US-Canada tax treaty and how does it help expats?

The US-Canada Tax Convention prevents double taxation and allocates taxing rights between the two countries for cross-border taxpayers.

Key benefits:

1. Elimination of double taxation: The treaty specifies which country has primary taxing rights. Employment income is generally taxed where work is performed; pensions are taxed in the country of residence.

2. Reduced withholding: Without the treaty, Canada withholds 25% on investment income paid to US residents. The treaty reduces this to 15% on dividends (5% for corporate investors with 10%+ ownership) and 0% on arm's-length interest and royalties.

3. RRSP protection: The treaty allows US citizens in Canada to defer tax on RRSP growth. However, TFSA growth is NOT protected — US persons must report TFSA income annually and it is fully taxable in the US.

4. Totalization Agreement: A separate agreement prevents dual Social Security contributions — employees generally pay into only one system based on where they work.

5. Tie-breaker rules: If you are resident in both countries simultaneously, treaty tie-breaker rules (permanent home, center of vital interests, habitual abode, nationality) determine primary residence.

Important: The treaty does not eliminate the US obligation to file. US citizens must still file US returns regardless of where they live.