Northcut – Tax Court finds discrimination contrary to Art XXV:1 of the Canada-US Convention where a US citizen/Cdn. resident faced higher Cdn. taxation than if not a US citizen

The taxpayer, who was a Canadian resident and both a Canadian and US citizen, worked for a US-based organization in Montreal until his retirement in December 2002, at which point he began to receive a pension from the employer’s pension fund.

As a U.S. citizen, he could only deduct, from the amount of the monthly pension payments, an amount based on the contributions he had made out of his salary to the pension plan, and on that basis, CRA only permitted him to take those deductions pursuant to s. 110(1)(f)(i) and Art. XVIII:1 of the Canada-US Convention in computing his taxable income for Canadian purposes. Art. XVIII:1 provided that pensions arising in the US and paid to a resident of Canada may be taxed in Canada, but the amount of such pension that would be excluded from taxable income in U.S. if the recipient were a resident thereof shall be exempt from taxation in Canada.

If, however, the taxpayer had only been a Canadian resident, not a U.S. citizen (or the holder of a green card), he would also have been able to deduct under Art. XVIII:1 amounts in respect of the contributions made to the pension plan by his employer.

Lafleur, J. found that that this constituted discrimination contrary to Art. XXV:1 of that Convention, i.e., as a US citizen he was being subjected to more burdensome taxation by Canada than if he had only been a Canadian resident.

Neal Armstrong. Summary of Northcut v. The King, 2026 TCC 136 under Treaties – Income Tax Conventions – Art. 25.