Capital Gains Taxes Income from Stock Market Trades

[Dann]

The US-Canada Tax treaty prevents double taxation however, what happens in a situation where the capital gains tax is lower here than in the US and it is your main source of income. Will you be forced to pay the difference to the IRS when you file you income taxes or does the tax treaty cover this?

To be more specific, if you have significant capital gains from stock market transactions - mostly stocks and relatively limited other taxable income. Canada taxes 50% of income from capital gains at the regular income tax rate, therefore the effective overall rate is no higher than 25% while in the US the short-term capital gains at 35%. As a US citizen living in Canada, will you be forced to pay this 10%+ spread when you file US returns?

Thanks for any replies.

[nelsona]

The short-term capital gains rate in US is your marginal rate for all income, so is not automatically 35%.

US will give you credit for the Cdn tax you pay. If you owe more, it will be due in US. Nothing to prevent this, other than holding funds longer.