27 November 1984 Income Tax Severed Letter A-0446 - []

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.

XXXX E. Wayne Hood Tel. (613) 993-7295

November 27, 1984

XXXX

This is in reply to your letter of September 11 concerning the Convention Between Canada and The United States Of America With Respect To Taxes On Income And On Capital (the Convention).

You advise that you expect to retire at the end of 1985 and that you and your wife will take up permanent residence in the United States of America (U.S.A.), becoming non-residents of Canada. You advise that your wife is a Registered Nurse and a citizen of the U.S.A. Accordingly, she will be able to work in the U.S.A., if she wishes. You have asked us to provide information concerning the taxation in Canada and the U.S.A. of income from various Canadian sources.

We must advise that questions concerning the taxation of income in the U.S.A. and credits for Canadian withholding taxes on income that is also taxed in the U.S.A. should be directed to the Internal Revenue Service.

We provide the following comments concerning the taxation in Canada (withholding tax) of Canadian source income should you and your spouse become non-residents of Canada for purposes of the Income Tax Act:

1. A Company Pension

Article XVIII of the Convention permits both Canada and the U.S.A. to tax a Canadian pension received by a U.S.A. resident. While the Income Tax Act imposes a withholding tax thereon of 25%, the Convention reduces this to 15%.

2. Canadian Government Annuity

The same provisions apply as in the case of pensions with Canadian withholding taxes limited to 15% of the annuity.

There are a variety of Canadian Government annuity arrangements and thus we add the following general comment. Only the portion of the annuity which would be included in income, if the annuitant were a resident of Canada, is subject to the 15% withholding tax.

3. Payments from an Income Averaging Annuity Contract

Article XXII of the Convention applies and permits both Canada and the U.S.A. to tax this source of income. The Income Tax Act imposes a withholding tax of 25% (which is not reduced by the Convention).

4. Registered Retirement Savings Plan (RRSP)

(a) Redemption

With respect to the receipt of an amount on a redemption, Article XXII of the Convention permits both Canada and the U.S.A. to tax this source of income without any limitations. The withholding tax imposed by Canada is 25%.

(b) Purchase of Annuity and receipt of annuity income

We assume you are advising that the RRSP funds would not be redeemed but rather would be used to buy an annuity from the issuer of the RRSP or transferred from the issuer to an authorized person who will provide the annuity payments. Article XVIII applies and the Canadian withholding tax thereon is reduced to 15%.

5. Quebec Pension Plan Income and Old Age Security Pension

Payments from these sources are exempt from withholding taxes pursuant to the provisions of subparagraph 212(1)(h)(i) and (ii) of the Income Tax Act. Article XVIII of the Convention also exempts these payments from Canadian income tax. It is noted that the Convention provides that one-half of any social security benefits from Canadian Sources will be exempt from taxation in the U.S.A. Both QPP and OAS pension payments are in our view, social security benefits.

6. In lieu of paying the fixed rates of taxes on certain of the sources as discussed above, a taxpayer may elect to file a return and pay tax thereon as though he were a resident of Canada. Any election made must be in accordance with the provisions of section 217 of the Income Tax Act. A copy of interpretation bulletin IT-163R which discusses these provisions is enclosed for your information.

During any year, taxes are withheld from payments in the normal manner. At the end of the year, the taxpayer determines whether it would be advantageous to file a 217 election. If so, he files the election and claims a refund of the amount involved.

With respect to an application for Old Age Security Benefits, you should direct an enquiry to Health and Welfare Canada. We are enclosing literature from this source, which we obtained from the local office of Canada Post.

We trust our comments will be useful to you.

Yours truly,

for Director Non-Corporate Rulings Division

WH/lb