24 March 1994 External T.I. 9325705 - PENS.& SOC. SEC. INC. FROM U.S. SOURCE EARN BY CANADIAN

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principales Questions:

imposition de revenu de pension et social security de source américaine.

Position Adoptée:

revenu de pension: imposable au Canada sauf si était exempté au Etats-Unis si le contribuable y était résident.

revenu de Sécurité Sociale: imposable au Canada sauf que droit à une déduction (50%) si payé en vertu de la Social Security Act des Etats-Unis

Raisons POUR POSITION ADOPTÉE:

56(1)a ; 110(1)f) ; Convention fiscale Canada Etats-Unis

XXXXXXXXXX 5-932570

March 24, 1994

Dear XXXXXXXXXX:

This is in response to your letter of September 7, 1993, requesting our views on the Canadian taxation of pension and social security payments.

We understand that you are presently receiving pension income from the New York State and Local Employees Retirement System and social security income from the United States. We assume that you are a resident of Canada. You indicated that you have received conflicting opinions from various employees of District Taxation Offices. Some advise that the payments are fully taxable while others suggested that they are only 50% taxable.

COMMENTS

Subject to any overriding provisions of a tax treaty, residents of Canada are taxable on their world income pursuant to subsection 2(1) of the Income Tax Act (the "Act"). This includes pension income and social security income received from a foreign country. Canadian residents in receipt of foreign pension income may be eligible to claim a tax credit against their Canadian tax in respect of taxes paid to the government of a foreign country on amounts received from a source in that country. Moreover, the Income Tax Convention between Canada and a foreign country, such as the United States, may provide relief from double taxation depending on the nature and the source of the income.

a) Pension Income

Pension income received from a source in the United States is generally taxable in Canada pursuant to paragraph 56(1)(a) of the Act unless such income would be excluded from taxation in the United States if the recipient were a resident thereof. (Paragraph XVIII(1) of the Canada-United States Income Tax Convention (1980), (the "Canada-United States Tax Convention")).

We do not have sufficient information to determine whether your pension income from the United States would be exempt from tax in that country should you be a resident thereof. In case of doubt, you may wish to contact the New York State and Local Employees Retirement System or the Internal Revenue Service to determine whether any portion of your pension income would be tax exempt in the United States if you were a resident of that country.

Your pension income may be subject to a withholding tax. If this is the case, you may be entitled to a foreign tax credit against Canadian taxes pursuant to subsection 126(1) of the Act.

b) United States Social Security

Social security income received from the United States is taxable in Canada pursuant to paragraph 56(1)(a) of the Act. Pursuant to paragraph XVIII(5) of the Canada-United States Tax Convention, only one-half of the payments received under United States social security legislation by a Canadian resident is taxable in Canada and the said payments are tax exempt in the United States. In order to qualify from that specific exemption of the Canada-United States Tax Convention, (which is reflected through a deduction in computing income pursuant to paragraph 110(1)(f) of the Act), the benefits must be payable by the United States by virtue of their Social Security Act. Among the benefits provided under the United States social security system, retirement, survivors and disability insurance benefits are commonly referred to as the "social security benefits" covered by the Canada-United States Tax Convention. (See paragraphs 1 and 3 of Interpretation Bulletin IT-122R2 enclosed).

c) United States Citizens

It should be noted that by virtue of paragraph XXIX (2) of the Canada-United States Tax Convention, the United States retains the right to tax United States citizens on their income as if there was no tax treaty between Canada and the United States.

d) Information for completing your 1993 Income Tax Return

In completing your Individual Income Tax Return for 1993, you must report on line 115 of your Tax Return, in Canadian dollars (using the exchange rate in effect on the day you received the amounts or if paid at various times throughout the year, using the average annual rate), the full amount of pension and social security income received during the year from the United States. You can deduct the exempted portion of your pension income on line 256 of your Tax Return. Foreign tax credits may be claimed on line 507 of your Tax Return.

We trust this information will be of assistance to you,

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

encl.