8 March 2004 External T.I. 2004-0058651E5 - US Social Security Disability Benefits

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.

Principal Issues: Are US Social Security Disability Benefits taxable?

Position: No.

Reasons: Paragraph 2 of IT-122R2

XXXXXXXXXX 			 	T. Young, CA
		2004-005865
March 8, 2004

Dear XXXXXXXXXX:

Re: U.S. Social Security Disability Benefits (the "Benefits")

We are writing in response to your letter to the XXXXXXXXXX Tax Centre regarding the taxation of the above-mentioned Benefits. Your letter was forwarded to us for reply.

In your letter, you state that the taxpayer, XXXXXXXXXX is developmentally handicapped. Because his father is an American citizen, he is entitled to U.S. Social Security Disability Insurance Benefits. In XXXXXXXXXX, he was awarded monthly Benefits retroactive to XXXXXXXXXX. You were told that the Benefits are not taxable in Canada.

You have asked us how to complete the taxpayer's XXXXXXXXXX tax return so he can continue to receive the GST credit (if eligible) and what returns need to be filed in future years.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. As well, the Canada Revenue Agency does not have any record of having received written authorization allowing you or your organization to act as his representative in income tax matters. However, we are prepared to provide the following comments, which may be of assistance to you.

As stated in paragraph 2 of interpretation bulletin IT-122R2, United States social security taxes and benefits, "disability insurance benefits paid under the Social Security Act up to the age of 65 are not considered to be income and therefore are not subject to tax in Canada." Therefore, these benefits do not have to be reported on an individual's Income Tax and Benefit Return.

With respect to the repayment of social assistance benefits, there are no provisions in the Income Tax Act (the "Act") to allow a taxpayer to deduct the repayments. However, since social assistance payments included in income pursuant to paragraph 56(1)(u) are offset by a deduction under paragraph 110(1)(f) of the Act, they were never subject to tax when received.

In order to receive the GST/HST credit, a taxpayer must file an Income Tax and Benefit Return each year and complete the GST/HST credit application on page 1 of the return. For more information, refer to the General Income Tax and Benefit Guide.

The documents referred to above may be found on our web site at www.cra.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch