27 July 2000 Internal T.I. 2000-0037447 - US SOCIAL SECURITY AS WAR PENSION

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Is an amount received from US Social Security by a widow of a US military veteran exempt from tax?

Position: It may be exempt under 81(1)(e), although we do not have enough information to determine if the amount is ordinary US Social Security survivor benefits, or pension related to death or disability arising out of military service during a war.

Reasons: 81(1)(d) exempts amounts received under or subject to certain Canadian war-related legislation. 81(1)(e) will exempt similar payments from foreign countries if the foreign country exempts Canadian pensions identified in 81(1)(d).

			July 27, 2000

	CHARLOTTETOWN TSO	HEADQUARTERS
	Client Services	Income Tax Rulings
			  Directorate
	Attn:  Sharon Bulger	S.E. Thomson
(613) 952-9853

			2000-003744

Taxation of US Social Security under the Income Tax Act

This is in reply to your fax of July 13, 2000, in which you ask if US Social Security benefits received by a widow of a US military veteran would be exempt from tax in Canada under the Income Tax Act (the "Act").

If the receipt is a pension payment received on account of disability or death arising out of a war from a country that was an ally of Canada at the time of the war, the amount will be excluded from income by virtue of paragraph 81(1)(e) of the Act. In order for paragraph 81(1)(e) to apply, the foreign country must grant substantially similar tax relief to payments identified in paragraph 81(1)(d). For more information, please refer to Interpretation Bulletin IT-397R Amounts Excluded from Income - Statutory Exemptions, and Certain Service or RCMP Pensions, Allowances and Compensation. In particular, 12 and 13 concern paragraph 81(1)(e) and 10 concerns paragraph 81(1)(d), but note that the reference in 10 to Merchant Navy Veteran and Civilian War-related Benefits Act does not reflect the statute's current name, Civilian War-related Benefits Act.

The amount received by the taxpayer in question was paid by the US Social Security Administration. From the information provided to us, we are unable to determine if the receipt is "a pension payment received on account of disability or death arising out of a war" as required by paragraph 81(1)(e), or if it is simply a survivor benefit paid under the US Social Security Act to which the taxpayer is entitled because of her husband's US employment with the military.

If the receipt is a survivor benefit paid under the US Social Security Act, the amount is taxable under paragraph 56(1)(a) of the Act, and the taxpayer has correctly included the amount (converted to Canadian dollars) in her income. In addition, the taxpayer is entitled to a deduction of 15% of the gross benefit by virtue of paragraph 5 of Article XVIII of the Canada-United States Income Tax Convention, 1980 (the "Treaty"), and paragraph 110(1)(f) of the Act. For more information, please refer to IT-122R2 United States Social Security Taxes and Benefits (in particular, 2 and 3 thereof), but note that the reference to a deduction of "one-half" in paragraph 3 of the bulletin, was changed to 15% by the 1997 Protocol to the Treaty.

The taxpayer may wish to obtain more information on the nature of the amount, including information on whether or not the amount is a pension as described paragraph 81(1)(e) of the Act, and confirmation that the US government provides a similar exemption for amounts which are received for the year under paragraph 81(1)(d) of the Act.

P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate