Tax payable for Interest incomes from US brokerage firm by non-resident of US?

[novice01]

Hi,

Canadian citizen here, used to work in US, has retired recently, and no longer resides in US.

As non-resident of US, I need to file 1040-NR to report dividend incomes from US corp. and pay tax
accordingly.
But I am not clear if interest incomes from US brokerage firms are payable or not?
A search for such topic on this forum showed an answer that stated that interest incomes from US sources
are neither reportable nor payable to IRS. Yet I find this IRS document on "Fixed, determinable, annual,
or periodical (FDAP) income" that includes interest income, which is to be taxed at 30% rate.

Can anyone please point to any other IRS bulletins that support non-reportable and non-payable tax on
interest income from US sources, for non-resident of US? What is the correct way to handle US interest?

Thanks,
novice01

[novice01]

After doing more research, I may be able to answer my own question. My interest income was reported by form
1042-S, where box 3 Chapter indicator showed "3", box 3a exemption code showed "05", and box 3b Tax rate
showed "00.00". From googling, chapter 3 represents the withholding that applies to Foreign persons;
the Exemption Code indicates why the recipient of the income is exempt from U.S. taxation. This applies if the
tax rate entered in box 3b is “00.00”. Exemption code "05" refers to portfolio interest exempt under IRC.
So it appears that this interest income in my case is not taxable, although I do not understand the jargon of
portfolio interest and why it is exempt for US taxation.

Thanks, Novice01.

[novice01]

After doing more research, I may be able to answer my own question. My interest income was reported by form
1042-S, where box 3 Chapter indicator showed "3", box 3a exemption code showed "05", and box 3b Tax rate
showed "00.00". From googling, chapter 3 represents the withholding that applies to Foreign persons;
the Exemption Code indicates why the recipient of the income is exempt from U.S. taxation. This applies if the
tax rate entered in box 3b is “00.00”. Exemption code "05" refers to portfolio interest exempt under IRC.
So it appears that this interest income in my case is not taxable, although I do not understand the jargon of
portfolio interest and why it is exempt for US taxation.

Thanks, Novice01.

[formerpatriot]

Hello novice01,

I am not an expert. I am facing a similar situation. I am just sharing what I have learned from various sources (including some precious help of nelsona).

1. According to the U.S.-Canada tax treaty, if you are a resident of Canada and a non-resident alien of the U.S.,
(a) interest income from U.S. sources is taxed at 0% rate by the IRS;
(b) dividend income from U.S. sources is taxed at 15% rate by the IRS.

2. According to the 1040-NR instructions, if all your U.S. source income consists of interest and/or dividends reported on 1042-S tax slips and if the proper tax rates were applied, you do not have to file a 1040-NR.

3. Of course, you have to declare this income in your Canadian tax return.

I expect that others, including nelsona, will correct me if I am wrong.