Under Article XVIII, pensions and annuities from Canadian sources paid to U.S. residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Canadian pensions and annuities paid to U.S. residents may be taxed by the United States, but the amount of any pension included in income for U.S. tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident.

Pensions. A pension includes any payment under a pension or other retirement arrangement, and payments under a sickness, accident, or disability plan. It includes pensions paid by private employers and the government for services rendered. Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada.

Pensions do not include social security benefits.

Annuities. An annuity is a stated sum payable periodically at stated times, during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

Social security benefits. Benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident are taxable only in the United States.

These Canadian benefits are treated as U.S. social security benefits for U.S. tax purposes. If your total income is above certain limits, a maximum of 85% of your benefits will be subject to U.S. tax. See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for more information on the tax on U.S. social security benefits. Any benefit under the social security legislation of Canada that would not be subject to Canadian tax if paid to a resident of Canada is not subject to U.S. tax.

1996 and 1997. If you are were a U.S. resident who received Canadian social security benefits during 1996 and 1997, your benefits were generally subject to Canadian tax (not U.S. tax). The 1997 protocol changed this rule. The change was made retroactive to January 1, 1996. For 1996 and 1997, you may choose to be taxed in the United States under the new rules or remain taxed in Canada under the old rules.

You should figure and compare the taxes under both sets of rules. If the U.S. tax is less than the Canadian tax paid, you are generally entitled to a refund of the Canadian tax.

You should have received a letter from Revenue Canada that contains instructions and an election form that you should use to claim a refund. If you are entitled to a refund and did not receive a letter, you should contact Revenue Canada. You have until December 16, 2000, to apply for a refund of Canadian tax. You can contact Revenue Canada in any of the following ways.

• Call 1-800-661-7896.
• Send a fax to 613-941-6905.
• Write to:

International Tax Services Office
2204 Walkley Road
Ottawa, Ontario K1A 1A8.

After you receive your refund, you will have to file U.S. income tax returns for those years to report the Canadian social security benefits as if they had been U.S. social security benefits. You must file a return even though you would not otherwise be required to file. If you have already filed a U.S. income tax return, you must file an amended return (Form 1040X). At the top of the return (or amended return), you should print or type "CANADIAN TREATY -- SOCIAL SECURITY."

For more information, see Notice 98-23, in Internal Revenue Bulletin 1998-18.

Note: Revenue Canada has also set up procedures for determining which Canadian residents who paid U.S. tax on U.S. social security benefits are entitled to refunds.

Alimony. Alimony and similar amounts (including child support payments) from Canadian sources paid to U.S. residents are exempt from Canadian tax. For purposes of U.S. tax, these amounts are excluded from income to the same extent they would be excluded from income in Canada if the recipient was a Canadian resident.

Previous | First | Next

Publication Index | 2000 Tax Help Archives | Tax Help Archives | Home