Canada-US Tax Treaty for Canadian Diplomats abroad


Hi David,

I am a Canadian Citizen working for the Canadian Consulate as a Locally Engaged Staff with an A2 Visa. I am married to a U.S. Citizen and own a home. I was determined to be a Deemed Resident of Canada and pay Canadian Taxes.

Do I have to file U.S. Fed or State returns? Although I was under the impression my income is exempt from U.S. tax under article XIX of the Canada-U.S. Tax Treaty, someone mentioned I have to pay State Tax. Is this true? If so, isn't this double taxation?

Appreciate the guidance.

david ingram replies:

In my opinion, as a matter of courtesy, the Canadian diplomat should report their world income to the US government and exempt it on the return under Article XIX of the US Canada Income Tax Convention (1980) (We usually call it a Treaty but it is technically called and named a 'Convention'). If you read your handbook, you will see that rental houses and other invest,ment income in the US 'IS' taxable.

In your case, it is to your families advantage for you to file a joint US return with your spouse and if you have not done so for 2003, 4 and 5, you should file a 1040X quickly to do so because the joint income tax rate will result in less tax for your US spouse if they are working.

All states but California honor the Treaty. In California, one would pay tax and then claim it as a foeign tax credit on their Canadian return.
This actually was given the following reply but I pulled it out in a weak moment and then took 10 days to get to it.