Effectively connected with a U.S. trade or business meaning

peter2010 · Post by **peter2010** » Mon Mar 05, 2012 11:35 am

In the instruction for completing 1040NR, I came across the followiing:

Line 9aâ€”Taxable interest. Report on line 9a all of your taxable interest income from assets effectively connected with a U.S. trade or business.

But further on I came across this paragraph:

Interest from a U.S. bank, savings and loan association, credit union, or similar institution, and from certain deposits with U.S. insurance companies, is tax exempt to a nonresident alien if it is not effectively connected with a U.S. trade or business.

So does this mean I have to report interest income or not? I stopped working in the US in 2010 but I still have bank accounts that are earning interest income.

Peter

nelsona · Post by **nelsona** » Mon Mar 05, 2012 12:17 pm

The line expalinsit: interst related to a business in US. This means a business account for a business in US.

So, nothing in your 1040NR needs to be reported except wages, and US rental income.

peter2010 · Post by **peter2010** » Mon Mar 05, 2012 12:35 pm

That is good news about interest income.

Then what about things like OID and dividend from stocks? Would I have to report them as income on the 1040NR?

Peter

nelsona · Post by **nelsona** » Mon Mar 05, 2012 5:18 pm

Dividends from US-based companies should have tax withheld by your broker in canada, and that is all that needs to be done wit these, since they are not effectively connected.

peter2010 · Post by **peter2010** » Mon Mar 05, 2012 9:53 pm

nelsona,

As always, thanks for your insightful replies.

The stocks I hold are not from a US company and I see that on form 1099-DIV there is an amount for foreign taxes paid. My guess is that I don't need to report the dividend income on 1040NR but would like to ask if my assumption is correct.

Also, for the OID, I bought an investment vehicle from HSBC bank that carries OID. It was my understanding that I need to report OID as income but again not sure whether the OID amount has to be inclueded in the 1040NR.

I would very much appreciate your answer on the two items above.

Peter

nelsona · Post by **nelsona** » Mon Mar 05, 2012 10:02 pm

You are a non-resident of the US. Unless you have a business in the US, none of your income other than your wages is connected. Even bank interest from a US bank is not reportable in US.

Why would a non-US resident have a broker that issues a 1099-DIV? You aren't supposed to have a US brokerage.

peter2010 · Post by **peter2010** » Mon Mar 05, 2012 10:23 pm

nelsona,

Thanks for your prompt reply.

Regarding:

"Why would a non-US resident have a broker that issues a 1099-DIV? You aren't supposed to have a US brokerage."

It is a carry over from the time I used to be a US resident. I never closed it after I left the US. In fact I still have a US address even though I have not been back to the US since summer 2010. Would this be a problem in some way?

Peter

nelsona · Post by **nelsona** » Mon Mar 05, 2012 10:55 pm

Well, you are paying US tax on things that you should not, and No Cdn tax on things that you should, as well as putting your uS broker in violation of your provinces securities regs.
Anyways, the 1099-DIV is a non issue for your 1040NR, as it has no US tax withheld, and the income is not reportable in US unless you have US dividends, which would be taxed at 15% on the non-connected page of 1040NR.