Foreign, Foreign Income, Foreign Investments, Non-Residents

Common USA Tax Forms Explained & How to enter them on your Canadian Tax Return

Before we begin, let’s remember that any foreign sources income entries on your Canadian Tax Return is based on your residency status within Canada.

Owing foreign stocks or dividends, working in a country outside of Canada, means you declare this income or gains on your Canadian Tax Return (T1). Because Canada has a tax treaty with the USA, you will not be double taxed. You may in turn receive a Foreign Tax Credit. Which will be applied to line 40500 of your tax return, if one is due to you.

Here is a list of some of the most common forms asked about:

1099 Series Forms

Canadian Equivalent T3 & T5 slips.

This series of forms is for individuals who have financial assets in the USA and is used for a variety of reasons.

You would open the “Foreign” slip in your tax return and apply the amounts accordingly.

  • 1099-INT: the interest income that is held in a US bank. – “Foreign Interest & Dividends”, which will be applied to line 12100 of your T1 form on your Canadian Tax Return.
  • 1099-DIV: income from a dividend stock held in the US. – “Foreign Interest & Dividends” which applies to line 12100, as well.
  • 1099-S: non-employment income for services rendered in the USA, this is the capital gains and transactions from real estate, which is reported under “Foreign capital Gains/losses” which will be applied to line 12700 of your tax return. Note that 50% of the amount will be calculated as that is all that is taxable. If it is a loss, an amount may or may not be appear, as it depends on if you have capital gains to offset the loss. Furthermore, if you choose not to utilize the loss in the current year, it can be carried forward indefinitely or carried back 3 years.

Then enter “Foreign Taxes Paid”, and the amount is then calculated to line 40500 of your tax return.

1042-S Form – Foreign Person’s U.S. Source Income Subject to Withholding

The 1042-S form is issued to non-residents of the USA that have investments there. The issuer of this slip is usually a financial institution like a bank, based on the information they have on file provided by the individual, as a non-resident of the USA. If the individual does not inform the institution of their residency status, then they will be issued a 1099-INT/DIV.

1042-s Box 2 – “Foreign Interest & Dividends” – Box 7a –“Foreign Taxes Paid”. Amounts  entered will calculate to line 12100 of the Canadian tax return.

To learn more about the 1042-S form, click here.

W2 Form – Wage & Tax Statement

Canadian Equivalent is T4 slip.

W2 form is issued to anyone that is employed in the USA, residents or non-residents. Employment income will be issued on the T4 and your residency status will be indicated in box 10 (as “zz”).

W-2 Box 1 – “Foreign Employment Income” – Box 2 – “Foreign Taxes paid” which translates to line 10400 of your tax return and the foreign taxes paid will be applied to line 40500.

Ensure you specify the source country (USA) and enter the exchange rate so the amount can be converted to CDN$. Example US$1=CDN$1.3, the exchange rate that will be entered is 1.3. You may want to apply a “note” to each slip as well to be able to easily identify each slip if needed later.

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