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Treaty Tie-Breaker Rules
When you qualify as a tax resident of both Canada and the US, Article IV of the Canada-US Tax Treaty provides a tie-breaker hierarchy to determine your treaty residence. The rules consider permanent home, centre of vital interests, habitual abode, and nationality in sequence.
Key Points
- The tie-breaker hierarchy: permanent home, centre of vital interests, habitual abode, then nationality.
- Claiming treaty tie-breaker status requires filing Form 8833 with your US return.
- The Savings Clause (Article XXIX) limits treaty benefits for US citizens and green card holders.
- Treaty residence affects sourcing of income, withholding rates, and eligibility for certain deductions.
Action Items
- 1.Determine if you are a dual resident under both countries' domestic law.
- 2.Apply the tie-breaker hierarchy to establish your treaty residence country.
- 3.File Form 8833 disclosing your treaty-based position with your US tax return.
- 4.Maintain documentation supporting your permanent home and centre of vital interests.
- 5.Consult a cross-border tax professional, as the Savings Clause creates significant exceptions.
Frequently Asked Questions
Does the treaty tie-breaker eliminate all US filing obligations?
No. Even if you claim Canadian treaty residence, you may still need to file a US return (Form 1040-NR) and report US-source income. FBAR obligations also remain.
Can a US citizen use the treaty tie-breaker?
The Savings Clause generally prevents US citizens from using the tie-breaker. There are narrow exceptions under paragraph 2 of Article XXIX.
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