1012 / Are U.S. citizens that receive income from property situated in Canada, such as dividends or interest, subject to tax in Canada, and if so, are there withholding requirements?

Yes, there is tax payable on income from property, but a U.S. citizen who is not a resident of Canada is not required to file a Canadian tax return if their only income from Canada is from certain types of “passive income.” Common examples of Canadian “passive” income include:

(i)      royalties;

(ii)     interest;

(iii)    dividends;

(iv)    rental income; and

(v)     pension income.

When royalties or interest, for example, are owed to a U.S. citizen who is not resident of Canada, the payer withholds tax at the time of payment to the non- resident. Thus, the U.S. citizen receives the balance of the funds owed. The general rate of withholding tax is 25 percent, but this may be reduced to a lower rate pursuant to the Canada- U.S. Tax Treaty. Given that the U.S. citizen must also report this income on their U.S. income tax return, there may be relief from double taxation under the Canada- U.S. Tax Treaty and the foreign tax credits available in the U.S. to offset the Canadian taxes paid. The payer of rental income earned by a non- resident must also withhold 25 percent of the gross rents received and remit that payment to the CRA, although there may be an option to reduce the withholding tax by calculating the amount relative to net income earned from the property in the case of real property rentals.