Topic · Canada
Do Americans in Canada pay the net investment income tax?
Yes, above the threshold — and the Canadian tax you paid reduces your regular US tax, not the 3.8%. The TFSA, the non-registered account, the RRSP and a property sold, each against §1411, with Bruyea on the credit line.
By Danilson Ramos · Founder, Atamatax
Published June 2026 · Updated September 2026
Part of the Canada desk — every US tax topic for Canada in one place.
Check it for your own income
Does the 3.8% reach your investment income?
Four banded answers, no figures typed, no email. The read says which side of the threshold you sit on and — if you paid tax abroad — what that credit can and cannot do.
Free, no account, nothing you answer leaves this page. Open the full NIIT Exposure Check
A banded screen for a US citizen or resident; Form 8960 settles the exact figure. Four answers give bands for net investment income and MAGI, and no read here nets a foreign tax credit against the 3.8% — the Code allows none.
The Bruyea estate's case was the Canadian version of a story every cross-border preparer knows: a US citizen in Canada, a gain Canada taxed, a US regular tax the credit wiped out, and a 3.8% that nothing touched. The Court of Federal Claims found a way around it in Article XXIV; the Federal Circuit closed it on August 31, 2026. This page goes account by account.
The threshold, with the exclusion added back
An American in Toronto excluding $110,000 of salary under §911 with $60,000 of investment income has an AGI of $60,000 and, for §1411, a MAGI of $170,000 — under $200,000, no NIIT. Add a $150,000 gain on a cottage and MAGI is $320,000: the excess over $200,000 is $120,000, the net investment income is $210,000, and the tax is 3.8% of $120,000. Someone crediting Canadian tax on their salary instead of excluding it reaches the same MAGI by a different road.
Account by account
| Product | PFIC inside? | FBAR | Form 8938 | NIIT | Person decides? |
|---|---|---|---|---|---|
| TFSA | Likely | Likely | Likely | Counts | Review |
| RRSP / RRIF | Unlikely | Likely | Likely | Depends | Review |
| LIRA / LIF | Unlikely | Likely | Likely | Depends | Review |
| RESP | Likely | Likely | Likely | Counts | Review |
| FHSA | Likely | Likely | Likely | Counts | Review |
| RDSP | Likely | Likely | Likely | Counts | Review |
| Non-registered brokerage account | Possible | Likely | Likely | Counts | — |
| Canadian mutual fund or TSX-listed ETF | Likely | — | Likely | Counts | — |
| Employer RPP / DPSP | Unlikely | Possible | Possible | Depends | Review |
| CPP / QPP / OAS | — | Unlikely | Unlikely | No | Review |
| Canadian rental property | — | — | Unlikely | Counts | — |
| Canadian principal residence | — | — | — | Counts | — |
| GIC / high-interest savings | — | Likely | Likely | Counts | — |
Non-registered account. Dividends, interest and realised gains are net investment income, and Canada taxes them (half of a gain is included in Canadian income). The Canadian tax credits against the regular US tax on Form 1116; the 3.8% survives. T3, T5 and T5008 slips carry the figures.
TFSA. The TFSA page has the whole story: the wrapper is not recognised, the income is US-taxed as it arises, and — because Canada charges nothing — there is no credit against the regular US tax either. Above the threshold, the same income is NIIT base.
RRSP / RRIF. Undistributed income is deferred under Article XVIII(7) and Rev. Proc. 2014-55, so nothing is net investment income while it stays inside. A withdrawal is pension income; whether it is annuity income for §1411 is a classification question — §1411(c)(5) excludes only US plans — that a preparer settles, and the Canadian withholding on it credits against the regular US tax.
RESP, FHSA, RDSP. Not recognised; income taxed currently in the US and, above the threshold, net investment income; the trust question is separate and routed for review.
Rental property and a cottage. Rent is net investment income; the gain on sale is net gain — the Bruyea facts. Canadian tax on both credits against regular US tax.
Principal residence. Exempt in Canada; in the US, §121 shelters $250,000 ($500,000 joint) and the rest is taxable gain and net investment income, with no Canadian tax to credit against anything.
What to check
- Add the §911 exclusion back to AGI and compare MAGI with the threshold for your status.
- Total the investment income across the non-registered account, the TFSA, the RESP and FHSA, any GICs and any property — from the T3, T5 and T5008 slips and the account statements.
- Leave RRSP/RRIF growth out (deferred) and treat any withdrawal as a classification item for the preparer.
- Take the Canadian tax on Form 1116 against the regular tax, with re-sourcing under Article XXIV where Canada taxes first.
- Compute Form 8960 on the same income with nothing credited against it.
- Run the PFIC analysis on every Canadian mutual fund and ETF outside the RRSP — the Form 8621 result is the chapter 1 income the base is built on.
Where do you stand?
Four banded answers and a read on the 3.8%, with Bruyea named on the credit line for Canada.
Authorities cited
- IRC §1411 — IRC §1411 — Net Investment Income Tax (3.8%)
- IRS Form 8960 — About Form 8960 — Net Investment Income Tax (Individuals, Estates, and Trusts)
- IRS Form 1116 — About Form 1116 — Foreign Tax Credit (Individual, Estate, or Trust)
- US–Canada Income Tax Treaty — Convention between the United States and Canada (signed 1980), as amended by its five Protocols
- Estate of Bruyea v. United States (Fed. Cir. 2026) — Estate of Paul Bruyea v. United States, No. 25-1563 (Fed. Cir. Aug. 31, 2026) (precedential) — the U.S.–Canada treaty's Article XXIV(1) and XXIV(4)(b) credits are subject to the U.S. Law Limitation; the Code and Convention unambiguously preclude offsetting the NIIT by a foreign tax credit; reversing 174 Fed. Cl. 238 (2024)
- IRC §911 — IRC §911 — Foreign earned income exclusion + housing exclusion/deduction
- IRC §121 — IRC §121 — Exclusion of gain from sale of principal residence ($250,000 / $500,000)
- Rev. Proc. 2014-55 — Rev. Proc. 2014-55 — automatic tax deferral for Canadian RRSPs and RRIFs; eliminates the Form 8891 election
- CRA · TFSA — Canada Revenue Agency — Tax-Free Savings Account (TFSA)
- CRA · RRSPs and related plans — Canada Revenue Agency — RRSPs and related plans (RRIF, LIRA, LIF)
Primary sources (Cornell Legal Information Institute for the US Code and CFR; IRS.gov for forms, procedures, and treaty documents). This page is general information, not individualized tax or legal advice.
Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.