Canadian citizens who come to the US for study, research, or work often face a complicated tax system that treats them differently depending on their visa status and length of stay.
The good news? The tax treaty between the US and Canada provides a framework that helps prevent double taxation and offers valuable tax benefits—especially for nonresidents on F-1, J-1, or H-1B visas.
In this article, we explore the key provisions of the treaty, and explain how Canadian nonresidents can benefit from treaty-based exemptions and reduced tax rates.
We will also outline how to properly claim these benefits using IRS Form W-8BEN!
Why the US-Canada tax treaty matters for nonresidents
The US-Canada tax treaty is one of the most comprehensive bilateral agreements that the US has with another country.
It’s designed to prevent double taxation—where both countries attempt to tax the same income—and to ensure fair tax treatment for residents working or studying across the border.
For Canadians temporarily in the US as nonresident aliens, the treaty provides opportunities to:
- Exclude certain types of income from US taxation (dependent or independent personal services, employment income, wages, salaries, etc).
- Reduce withholding taxes on interest, dividends, and royalties
Understanding and correctly applying these provisions can lead to significant tax savings and prevent unnecessary overpayment.
Case studies – F, J and H-1B visa
All visa holders on F, J and H-1B visas as nonresidents can claim tax treaty benefits for dependent personal services only in the following cases:
Case 1: If they stayed less than 183 days and the employer is a foreign resident – in this case the whole income is exempt under the tax treaty.
Case 2: If the person receives no more than $10,000 during the year, this income is exempt from tax no matter the length of stay or residency of the employer.
Note: If the person earns more than $10,000 in dependent services during the tax year, the whole income, including the first $10,000 are taxable in the US.
J and H1B may be eligible to claim tax treaty for independent personal services (honoraria or self-employment income) only if this income is not attributable to a fixed base the taxpayer has in the US.
Capital gains under the US-Canada tax treaty
Capital gains are typically taxable in the country of residence.
For Canadian nonresidents in the US, capital gains from US sources (e.g. sale of US property or investments) may be taxed in the US, depending on the asset type and duration of holding.
However, in many cases, Canadian nonresidents will not be taxed on US capital gains, and will instead report these gains on their Canadian return.
Using Form 8233 to claim treaty benefits
To claim tax treaty benefits and avoid excess withholding, Canadian nonresidents must complete Form 8233 and submit it to their US income source.
Form 8233 is used to:
- Certify nonresident alien status
- Declare Canadian tax residency
- Identify the relevant treaty article (e.g. Article XX for students, Article XV for compensation)
- Claim reduced or exempt withholding rates on income
Form 8233 should be submitted before the end of the year of the payment to the employer/payer of the income.
Canadians with US-sourced income generally must still file Form 1040-NR annually.
Form W-8BEN
As well as this, any Canadians that receive interest, dividends, royalties and certain other types of income will need to file form W-8BEN.
You can prepare forms W-8BEN and 8233 easily online with Sprintax Calculus.
Withholding and refunds
Without claiming treaty benefits, Canadians may face standard US withholding, such as:
- 30% on passive income like interest, dividends, and royalties
Remember, properly claiming treaty exemptions using Form W-8BEN can:
- Reduce or eliminate withholding at the source
Filing the correct forms and identifying your eligibility under the treaty is essential.
For those unsure of their residency status, eligibility for exemptions, or how to navigate IRS requirements, Sprintax can help!
Our platform simplifies treaty analysis and ensures you claim all the benefits you’re entitled to—while staying compliant with both US and Canadian tax laws.
You can prepare forms W-8BEN and 8233 easily online with Sprintax Calculus.
