21 June 1996 External T.I. 9612045 - ARTICLE XVIII U.S. TREATY

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.

Principal Issues:

1. Does a taxpayer need to be a former resident of U.S. before he can qualify for the exempt referred to in paragrah 1 of Article XVIII of the Canada-U.S. Income Tax Convention?

2. What information is needed for a taxpayer who receives a periodic pension from International Monetary Fund to claim the exemption mentioned in 1 above?

Position:

1. No.

2. A letter from IMF annually to file with T1.

Reasons:

1. The wording "if the recipient were a resident thereof" in paragraph 1 of Article XVIII of the U.S. treaty does not require the recipient to be a resident or former resident of the U.S.

2. Experience in the World Bank situation indicates that U.S. IRS may not have the necessary information to provide us the details in respect to the exempt amount of the pension.

		961204
XXXXXXXXXX	S. Leung

June 20, 1996

Dear Sirs:

Re: Article XVIII of the Canada-United States Income Tax Convention (1980) (the "Convention")

We are writing in response to your letter of March 29, 1996 in which you requested our interpretation of the clause "if the recipient were a resident thereof" used in paragraph 1 of Article XVIII of the Convention.

The post-amble of paragraph 1 of Article XVIII of the Convention states that pension arising in a Contracting State (e.g., the U.S.) and paid to a resident of the other Contracting State (e.g., Canada) shall be exempt from taxation in the other Contracting State (e.g., Canada) if it would be excluded from taxable income in the first-mentioned State (e.g., the U.S.) if the recipient were a resident of that State (e.g., the U.S.).

It is our opinion that as long as the amount of the pension arising in the U.S. would have been excluded from taxable income in the U.S. by a U.S. resident recipient, such amount would be exempt from taxation in Canada by a Canadian resident recipient. Consequently, it does not require that the Canadian resident recipient be a resident or former resident of the U.S. or a person otherwise qualified to be a resident of the U.S. before he or she can qualify, under paragraph 1 of Article XVIII of the Convention, for the exemption in Canada.

In order to establish his or her claim for the exemption provided under paragraph 1 of Article XVIII of the Convention, a taxpayer is required to file annually with his or her T1 Income Tax Return information that the payer of the pension has filed with U.S. Internal Revenue Services with respect to the amount of the pension paid to the taxpayer, the exempt portion of such pension and the amount of tax withheld on the taxable portion thereof. If the payer organization is exempt under the U.S. law from filing the above information, the taxpayer should at least obtain a letter from the payer annually to file with his or her income tax return containing the following information:

the taxpayer is the retiree of the payer organization;
the pension plan is a qualified plan under the U.S. Internal Revenue Code;
the annual amount of the pension;
the exempt portion thereof which would be excludable from U.S. income taxation if the recipient were a U.S. resident; and
the amount of tax withheld on the taxable portion of the pension.

Under the Income Tax Act every resident of Canada is required to report his or her worldwide income including the full amount of his or her pension income from sources outside Canada. If all or a portion of the pension income of a taxpayer is exempt from taxation because of a tax treaty that Canada has with another country, the taxpayer would be entitled to a deduction of the exempt portion of the pension and he or she may claim such a deduction on line 256 of the T1 Income Tax Return.

We trust you will find the above satisfactory.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch