If a U.S. resident receives interest on Canadian participating debt, she will be required to pay Part XIII tax on the amounts received.

Question

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Interest received by a U.S. resident from Canadian participating debt is typically subject to Part I tax, not Part XIII tax. Part XIII tax generally applies to non-resident withholding tax on certain types of passive income (e.g., dividends, rental income), but interest income from participating debt is usually taxed under Part I for non-residents carrying on business in Canada or disposing of taxable Canadian property.

If a US Resident Receives Interest on Canadian Participating Debt, She Will