3Royalties received from U.S. sources
There are a number of ways you may have earned royalty income. If you are a musician or author, you may receive musical performance royalties or book royalties. Other examples include mineral and franchising royalties.
In some cases, royalty income may be exempt from U.S. tax, and in other situations the tax may be at a reduced rate.
4Winnings from gambling, lotteries, or prizes
Although these types of winnings are not taxable in Canada, you will have to pay U.S. tax if the winnings are from U.S. sources. You will be subject to a tax withholding of 30% of your winnings. However, under the Canada-U.S. Income tax treaty, losses are deductible up to the amount of your winnings.
The business from which you won will issue you a Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding) that discloses your winnings.
For your losses to qualify as deductions, you must be able to provide the IRS proof of your losses through a list of all amounts won or lost, and include dates, times, and locations. You should also keep any related documents as proof of your winnings or losses.
5 The Sale of U.S. property
The Foreign Investment in Real Property Tax Act (FIRPTA) is the U.S. federal law that applies withholding tax on foreign persons for dispositions of U.S. property (real estate). The term disposition includes, but is not limited to, a sale or exchange, liquidation, gift, transfer, or redemption.
This applies to U.S. real estate, such as vacation property, or real property that you, as a non-U.S. citizen or resident, are selling. There are specific rules dealing with these situations. See our FIRPTA Guide for more information.
The IRS enforces FIRPTA to ensure the U.S. government is able to collect any tax obligations on foreign persons.
Selling your U.S. property often involves a capital gain on the sale. See Capital Gains Tax for Canadians Selling U.S. Property for further explanation.