Publication 597 |
2001 Tax Year |
Pensions, Annuities, Social Security, & Alimony
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.
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