Confused about how to handle U.S. tax forms on your Canadian tax return? This guide explains the common U.S. tax forms and provides clear instructions on how to enter them correctly. Before we begin, you will need to determine your residency status, as reporting foreign income on a Canadian tax return is based on your residency status within Canada. If you are a non-resident of Canada, you pay tax on income you receive from sources in Canada only. So, a US tax form would not need to be included in your Canadian tax return.
If you own foreign stocks that issue dividends or earn income outside the country as a Canadian resident, you must declare the foreign income on your T1. Canada has a tax treaty with the USA as well as other countries, to avoid double taxation. So, if you also paid foreign taxes, you may in turn receive a foreign tax credit.
Here is a list of some of the most common forms asked about:
Key Takeaways
- Canadian residents must declare foreign income, such as dividends and interest from foreign stocks, while non-residents are only taxed on Canadian income.
- US tax forms like the 1099 series must be reported as foreign income on the Canadian T1 form. The 1042-S form corresponds to the Canadian T4A slip, and the W2 form corresponds to the Canadian T4 slip.
- Canada has tax treaties with countries like the USA to avoid double taxation. Foreign taxes paid can be reported on line 40500 of the Canadian tax return for a foreign tax credit. All foreign income must be converted to Canadian dollars using the appropriate exchange rate for the year.
1099 Series Forms
Canadian Equivalent T3 & T5 slips.
This series of forms is for individuals who have financial assets in the USA and can be issued for a variety of investment or other US payments received.
The 1099 should be entered as a Foreign slip in your tax return. Use the income category from the slip to make sure it will report to the correct line of your T1.
- 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: Capital gains and transactions from real estate, reported under “Foreign capital Gains/losses” will be applied to line 12700 of your tax return. Note: Currently, 50% of the amount is taxable. There is a proposal awaiting legislation that would increase the inclusion rate to 66.7% over $250,000. If there is a loss, apply it to other capital gains to offset the loss. If you can’t use the loss in the current year, it can be carried forward or carried back 3 years.
Enter an exchange rate to convert US dollars into Canadian. Also enter any Foreign Taxes Paid which is reported to line 40500 of your tax return.
1042-S Form – Foreign Person’s U.S. Source Income Subject to Withholding
Canadian Equivalent T4A Slip.
The 1042-S form is issued to non-residents of the United States that have earned a form of US income. Some of the income categories that get reported on a 1042-S include; Interest, Corporate distributions, Royalties, Pension distributions, Lottery winnings, Insurance proceeds, and even Student scholarships.
To learn more about the 1042-S form, click here.
W2 Form – Wage & Tax Statement
Canadian Equivalent T4 slip.
W2 forms are issued to anyone that earns US employment income. Canadian residents should enter this as a foreign slip, indicating foreign employment income from the W2 box 5, which will report to line 10400.
W2 Box 4 Social security tax withheld, Box 6 Medicare tax withheld, along with any final Federal and State taxes paid on your US tax return can be entered as foreign taxes paid into your tax return and the amount will carry to line 40500.
Ensure you specify the source country and enter the exchange rate so the amounts can be converted into Canadian dollars.
Example: In 2022 the average US foreign exchange rate was 1.3013. So if your 2022 slip shows $500.00 US dollars it would convert to $650.65 Canadian dollars.
You may want to apply a “note” to each slip as well to be able to easily identify each slip if needed later.