Canada and Texas
Canadian ties to Texas run through energy in Houston and the Permian Basin, technology firms in Austin and Dallas, retirees who spend the winter in the Rio Grande Valley, and families who move south for work. Each brings both countries' tax rules into play. BOMCAS works on both sides of the border and handles the Canadian and U.S. filings together, so income, credits and timing line up.
Canadian Businesses Selling Into Texas
The Canada–U.S. tax treaty generally protects a Canadian company from U.S. federal income tax on business profits unless it has a permanent establishment in the United States, and claiming that protection may still require a U.S. return with a treaty disclosure. The treaty does not cover state taxes. The Texas franchise tax is not an income tax, and a foreign entity with $500,000 or more in gross receipts from Texas has franchise tax nexus whether or not it has an office here. Sellers of goods or taxable services into Texas may also need a sales and use tax permit once Texas revenue reaches $500,000 in 12 months, or sooner if they have inventory, staff or a location in the state.
Canadian Crews and Projects in Texas
Oilfield service companies, engineering firms and contractors sending people to Texas projects need to look at federal withholding on wages, the treaty's tests for when Canadian employees become taxable in the U.S., Texas unemployment tax for workers based here, and sales tax on materials and taxable services. A project or site that lasts long enough can create a permanent establishment. We plan the structure before the first crew arrives.
Winter Texans and Other Snowbirds
Canadians who winter in the Rio Grande Valley or along the coast should count their U.S. days each year. The substantial presence test counts all days in the current year, one-third of the prior year and one-sixth of the year before that, and a total of 183 or more can make a Canadian a U.S. resident for tax purposes. A Canadian who was in the U.S. fewer than 183 days in the current year, and kept a tax home and closer connection in Canada, can usually avoid that by filing Form 8840 by the due date. Texas has no income tax, so the issue is federal only, but the U.S. still taxes U.S.-source income such as rent.
Texas Property Owned From Canada
Canadians who rent out a Texas home can elect to be taxed on net rental income on Form 1040-NR instead of having 30 percent withheld from gross rent. Property tax is paid locally, and the home cannot receive a homestead exemption unless it is the owner's principal residence. When the property is sold, the buyer must generally withhold 15 percent of the amount realized under FIRPTA unless a withholding certificate reduces it, and the sale is also reported in Canada with a foreign tax credit for U.S. tax paid.
Working in Texas
Canadians who move to Texas on TN status or another visa usually become U.S. residents for tax once they meet the substantial presence test. In the year of the move, a dual-status return may apply, and Canada may continue to treat them as residents until their ties are cut. Texas wages carry no state tax, but RRSPs, TFSAs, Canadian bank accounts and Canadian corporations owned by U.S. residents each have U.S. reporting rules.
Moving Between Canada and Texas
Leaving Canada triggers a deemed disposition of most property at fair market value, and arriving in the U.S. resets residency for federal purposes. Married couples who move to Texas also need to understand how Texas community property rules apply to income earned after the move. We plan the departure and arrival years together.
Pensions and Benefits
Canada Pension Plan and Old Age Security benefits paid to a U.S. resident are taxable only in the United States, where they are treated like U.S. Social Security, and U.S. Social Security paid to a Canadian resident is taxable only in Canada. Canadian employer pensions and RRSP withdrawals received by someone living in Texas are generally taxed in the U.S., with Canada withholding at source within treaty limits and a foreign tax credit on the U.S. return. We match these rules across both returns.
A Note on Mexico
Many Texas businesses also trade with Mexico. Our cross-border work focuses on Canada and the United States; when a client has Mexican operations or residency questions, we coordinate the U.S. side with the client's Mexican advisers.
How We Work
- A review of residency and treaty position in both countries.
- U.S. federal returns, including 1040-NR and treaty disclosures.
- Texas franchise and sales tax registration where needed.
- Coordination with the Canadian return so credits are claimed once.
Texas Cross-Border Tax Questions
Does the Canada–U.S. treaty protect my company from Texas franchise tax?
No. The treaty covers federal income tax, and the franchise tax is a state tax. A Canadian company with $500,000 or more in Texas gross receipts has franchise tax nexus.
I spend winters in Texas. Will I become a U.S. resident for tax?
Possibly, if your days add up to 183 or more under the substantial presence test. Filing Form 8840 by the deadline usually preserves non-resident status.
What happens when a Canadian sells a Texas property?
The buyer generally withholds 15 percent of the amount realized under FIRPTA. You then file a U.S. return to report the actual gain and report the sale in Canada.
Do Canadians working in Texas pay state income tax?
No. Texas has no personal income tax, but federal tax and Canadian residency rules still apply.
Talk to BOMCAS About Cross-Border Tax in Texas
On the U.S. side, individuals need a personal return and companies a business return and franchise tax report, and sellers often need a sales and use tax permit. A Texas operation also needs bookkeeping and payroll. Plan before a move or a sale, and use late filing for missed years. For a summary of how Texas taxes businesses and residents, see the Texas accounting and tax overview or our United States services.
Tell us what you need help with and we will reply with next steps. Contact BOMCAS, use the contact form below, call 780-667-5250 or email info@bomcas.ca. You can also go back to the Texas overview. This page is general information, not advice for a particular situation.