5 December 1986 Income Tax Severed Letter 5-2305 - [861205]

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.

G. Thornley (613) 957-2130

December 5, 1986

Dear XXXX

This is in reply to your letter of September 28, 1986 requesting information with respect to the taxation of annuity payments.

You indicate that you have been resident in the United States for 22 years although you are citizens of Canada. You state that "you are going back next summer" and we presume you mean back to Canada You do not say however whether or not you are Faxing up residence in Canada. Nor do you say from which country the annuity payments will be sent. This is important, as taxation in Canada is based on residency as well as on source of income. Taxation in the U.S. on the other hand is based on citizenship, on source, and on residency or deemed residency i.e. green card holder.

Questions regarding taxation in the United States should be directed to your nearest Internal Revenue Service office.

As your future residency status is not clear our comments will be of a general nature and will be based on the assumption that you will be receiving annuity payments from Canada.

Our Comments

If you become a resident of Canada next year and start receiving annuity payments at that time, you will have to report the income portion of your annuity receipts when filing your Canadian tax return. If when becoming a resident of Canada you give up your U.S. "green card", no income tax return should be required in the United States solely on account of annuity payments received while a resident of Canada.

If you do not become a resident of Canada, the Canadian issuer of the annuity will withhold and remit on your behalf to Revenue Canada, 15% of the income portion of the annuity. This represents tax under

Part XIII of the Income Tax Act that is required to be paid by nonresidents of Canada on annuity income derived from Canadian sources. No Canadian tax return is required to be filed with respect to the income received by you or the tax withheld on your behalf. When filing your U.S. return you would probably have to report this amount but you may qualify for a foreign tax credit. If so, this would entitle you to claim a deduction from your U.S. taxes payable for some portion or all of the above withholding taxes paid to Canada.

In the event that your annuity was purchased in the U.S. and periodic payments will be received while resident in Canada, it will be the U.S. issuer that may have to withhold tax on your behalf. If so, you may then qualify to claim a foreign tax credit on your Canadian tax return. Should the IRS Code provide for a withholding tax on such payments, such tax may not be 15% according to the 1980 Canada U.S. Income Tax Convention.

If we can be of further assistance in this matter please write, providing as much relevant information as possible.

Yours truly,

ORIGINAL SIGNED BY Wm R. McColm

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch