Canadian Investors: US Investment Guide
Comprehensive tax treaty, USMCA benefits, and seamless cross-border investment for Canadians
Canada Investment Overview
Tax Treaty
Dividend Rate
Visa Options
Capital Controls
Canada and the United States share the world's largest bilateral trade relationship and a comprehensive tax treaty. Canadians face no capital controls, have multiple visa options (TN, E-2, L-1), and benefit from reduced withholding rates. Cross-border real estate investment is particularly popular, with hundreds of thousands of Canadians owning US property.
Canada-US Tax Treaty
Withholding Rate Reductions
The Canada-US Tax Treaty provides comprehensive withholding reductions:
| Income Type | Standard Rate | Treaty Rate | Notes |
|---|---|---|---|
| Dividends (portfolio) | 30% | 15% | Under 10% ownership |
| Dividends (direct) | 30% | 5% | 10%+ corporate owner |
| Interest | 30% | 0% | Complete exemption |
| Royalties | 30% | 0% | Generally exempt |
| Pensions/Annuities | 30% | 15% | Special provisions |
Estate Tax Protection
The treaty provides significant estate tax relief for Canadians:
Treaty Benefits
- Pro-rata unified credit
- Marital credit available
- Effective high exemption
- Credit for Canadian tax paid
Canadian Considerations
- No estate tax in Canada
- Deemed disposition on death
- Capital gains triggered
- Credit mechanism coordinates
Avoiding Double Taxation
Canada provides foreign tax credits for US taxes paid:
| Income Type | US Tax | Canadian Treatment |
|---|---|---|
| US rental income | Federal + state tax | Foreign tax credit (FTC) |
| US dividends | 15% withholding | FTC against Canadian tax |
| US capital gains | FIRPTA applies | FTC for US tax paid |
| US business income | If PE exists | FTC applies |
Capital Controls
No Restrictions on Canadian Capital
Canada imposes no capital controls on outbound investment:
Permitted Freely
- Unlimited foreign investment
- No approval requirements
- No currency restrictions
- Free repatriation
Reporting Requirements
- FINTRAC for large cash movements
- T1135 for foreign property over CAD 100K
- T1134 for foreign affiliates
- Annual tax reporting
Entity Formation
Recommended Structures
Canadian investors should consider these US entity options:
US LLC (Single Member)
- Disregarded for US tax
- Canada may treat as corporation
- Check-the-box complexity
- Good for rental property
- FAPI rules may apply
US C-Corporation
- 21% US corporate rate
- 5-15% dividend withholding
- Clear Canadian treatment
- Best for active business
- E-2 visa compatible
Canadian Corp + US Sub
- Canadian holding company
- US subsidiary (Corp or LLC)
- 5% dividend rate
- Familiar structure
- T1134 reporting required
Direct Personal Ownership
- Individual owns US property
- Simple but estate exposure
- Report on T1 and T1135
- Common for vacation homes
- Consider insurance for estate
Snowbird Real Estate
Canadian Vacation Property in the US
Hundreds of thousands of Canadians own US vacation property:
Popular Destinations
- Florida (Miami, Orlando, Tampa)
- Arizona (Phoenix, Scottsdale)
- California (Palm Springs, San Diego)
- Hawaii (Maui, Big Island)
- Texas (Austin, Gulf Coast)
Stay Duration Rules
- Max 182 days to avoid US tax residency
- Track days carefully (SPT test)
- B-2 visa allows 6 months
- Closer Connection exception
- Canadian health coverage rules
Tax Considerations for Vacation Homes
| Scenario | US Tax | Canadian Tax |
|---|---|---|
| Personal use only | Property tax only | T1135 reporting, no income |
| Rental income | Report on 1040NR, elect ECI | Include in Canadian income, FTC |
| Sale of property | FIRPTA 15% withholding | Capital gain, FTC for US tax |
| Death | Estate tax (treaty relief) | Deemed disposition |
Visa Options
TN Visa (USMCA)
The TN visa under USMCA (formerly NAFTA) allows Canadians to work in the US:
TN Requirements
- Canadian citizenship
- Qualifying profession (listed occupations)
- Job offer from US employer
- Relevant degree/credentials
- Apply at border or preclearance
TN Benefits
- 3-year initial term
- Renewable indefinitely
- No cap or lottery
- Same-day approval at border
- TD status for dependents
E-2 Treaty Investor Visa
Canadians are eligible for E-2 treaty investor visas:
E-2 Requirements
- Substantial investment ($100K+ typical)
- Active business operation
- Majority ownership (50%+)
- More than marginal enterprise
E-2 Benefits
- 5-year initial term for Canadians
- Renewable indefinitely
- Spouse can work
- Run your own business
Canadian Tax Considerations
Reporting US Investments
Canadian residents must report worldwide income and foreign property:
Required Forms
- T1135: Foreign property over CAD 100K
- T1134: Foreign affiliates
- T1: Include foreign income
- T2: Corporate foreign income
Penalties
- Late T1135: $25/day (max $2,500)
- Gross negligence: $500-$12,000
- Knowingly false: $1,000-$24,000
- Plus potential reassessment
FAPI Rules for US Companies
Foreign Accrual Property Income rules can trigger Canadian tax:
FAPI Applies When
- Controlling interest in foreign corp
- Passive income earned
- Rental income may qualify
- Investment income
Planning Options
- Active business exemption
- Five-employee rule (rentals)
- Structure as active business
- Direct ownership alternative
Departure Tax
Moving to the US from Canada
Leaving Canada triggers deemed disposition of most assets:
Departure Tax Applies To
- Shares and securities
- Foreign real estate
- Business interests
- Most capital property
Exempt Property
- Canadian real estate
- Canadian business property
- Pensions (special rules)
- RRSPs (withholding applies)
Frequently Asked Questions
How many days can I stay in the US as a snowbird?
To avoid US tax residency under the Substantial Presence Test, stay under 183 days using the formula: current year days + 1/3 of prior year + 1/6 of year before. File Form 8840 (Closer Connection) if you exceed the formula but maintain ties to Canada. Also check provincial health insurance rules, which vary.
Should I use an LLC for US real estate?
It depends. A US LLC provides liability protection, but Canada may treat it as a corporation, causing FAPI issues and losing the flow-through tax treatment. For rental properties, a US C-Corp may be cleaner, or direct ownership with adequate insurance. Cross-border tax advice is essential.
What happens to my RRSP if I move to the US?
Your RRSP can remain in Canada, but the US may tax the growth annually (unless you file a treaty election). Withdrawals face Canadian withholding (25% for non-residents, reducible to 15% under treaty) and US tax. Coordinate RRSP withdrawal strategy with both countries' tax systems.
Can I get a US mortgage as a Canadian?
Yes, many US lenders work with Canadian borrowers. Typical requirements include 30-35% down payment, US credit history (or international credit report), and documentation of Canadian income. Some Canadian banks also offer cross-border mortgage products.