27 November 1985 Income Tax Severed Letter A-1926

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.

XXX

Thank you for your letter of September 18, 1985 in connection with withholding tax on certain pension and annuity payments made by Canadian payors to beneficial owners resident in the United States.

We understand you are a Canadian citizen resident in the United States and in receipt of the following XXX of pensions and annuity income from Canadian payors:

• • Old Age Security - Canada Pension - Non-contributory company pension - Crown Life annuity purchased by a government savings plan - Canadian Government Annuity

You request our advice as to which, if any, of the above listed payments will, starting in January 1986, be affected by the Canada-United States Income Tax Convention (1980) (the "Convention") to require withholding tax at source even though you pay U.S. income tax on all of the aforementioned amounts.

We can advise that Article XVIII of the Convention provides that pensions arising in Canada and payable to a resident of the United States may be taxed in Canada but the tax may not exceed 15 per cent of the gross amount of such payments. Also, Article XVIII of the Contention provides that annuities arising in Canada and payable to a resident of the United States may be taxed in Canada but again the tax may not exceed 15 per cent of the XXX of the annuity payment that would be included in taxable income in Canada. However, paragraph 212(1)(h) of the Canadian Income Tax Act exempts from withholding tax in Canada the following pension payments:

• • pension benefit payments attributable to services rendered in years throughout which the recipient was not resident or employed in Canada;
• • a pension or supplement under the Old Age Security Act;
• • a benefit payment under the Canada (or Quebec) Pension Plan;
• • pension benefits transferred to a registered pension fund or registered retirement savings plan for the non-resident person; and
• • certain employees' or workman's compensation payments and social assistance payments made by a registered charity or under certain government programs in Canada made a means or needs basis.

Thus, your annuities and company pension benefits will continue to be subject to withholding tax and your Old Age Security and Canada Pension Plan will continue not to be subject to withholding tax.

We note that according to Article XVIII(5)(b) of the Convention one-half of the Old Age Security and Canada Pension Plan benefits received by you are exempt from taxation in the United States.

With respect to U.S. income tax that you indicate you pay in regard to the Canadian sourced amounts, you may wish to consult with the U.S. Internal Revenue Service to determine if there are possibly any U.S. tax credits or other relief available with respect to the amounts withheld in Canada.

We trust these comments will be of some assistance.