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Capital gains tax on shares in Canadian company for U.S. citizens:

  1. Do U.S. citizens have to pay capital gains taxes on stocks purchased from a Canadian company through a U.S. brokerage?

  2. If so, is there a way to avoid double taxation?

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Whether a U.S. or Canadian resident for tax purposes, yes you would owe a capital gain tax resulting from a gain on the sale of Canadian company stock, much the same as if it were U.S. company stock.

But if you are a U.S. resident for tax purposes (and assuming you are not a resident of Canada for tax purposes) then AFAIK you would only owe a capital gain tax to the IRS but not to the Canada Revenue Agency. i.e. you won't get dual taxed on the same gain.

There is a tax treaty between Canada and the United States. Here's a version of the treaty from the IRS web site (PDF). There's also IRS Publication 597 which discusses the treaty (PDF).

The tax treaty's Article XIII paragraph 4 would apply to most* public company stock:

  1. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident.

(*The exceptions outlined in paragraphs 1, 2, and 3 of Article XIII pertain to gains on real estate, permanent business establishments, and stock or units whose value is principally derived from real estate.)

FWIW, dividend, interest, and other distributed income are treated differently, with withholding taxes typically applied at source (by the broker). There are scenarios where one can apply to get withholding taxes reduced, and/or claim tax credits for tax withheld by the other country. But for capital gains on most stock, the situation is straightforward, with no withholding at source and no dual taxation or dual filing concerns. You declare the gain on your tax return where you are tax resident.

Disclaimer: I am neither a tax professional nor a lawyer. Consider seeking professional advice or do your own due diligence.

  • Thanks for your cogent answer and for improving my question. – M. Taylor Jan 11 '18 at 15:42

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