12 April 1988 Income Tax Severed Letter 5-5376 - []

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 K.B. Harding (613) 957-2124

APR 12 1888

Dear Sirs:

This is in reply to your letter of January 20, 1988 concerning the treatment of U.S. Railroad Retirement benefits.

You have requested we confirm that taxes withheld by the U.S. on tier 2 benefits and the portion of tier 1 benefits under the railroad retirement plan which do not represent social security benefits will be considered as foreign taxes paid for purposes of calculating the foreign tax credit in Canada.

It is our understanding that tier 1 railroad retirement benefits are divided into two portions. One portion is an amount that is equivalent to the U.S. social security benefit that railroad employees would have been entitled to receive if the employee's service had been covered under the U.S. social security system rather than the railroad retirement system. This portion of the tier 1 benefit is treated similar to social security benefits.

The second portion of tier 1 benefits is not considered to be a U.S. social security benefit and is treated as any other amount received out of a pension plan and is therefore "equivalent to a tier 2 benefit".

As you are aware tier 2 railroad retirement benefits are included in the income of a resident of Canada since such payments are fully taxable in Canada.

It is our view that the taxes paid on the portion of the tier 1 benefits which are the "equivalent to tier 2 benefits" and the tier 2 benefits will be considered as taxes paid to the United States for purposes of calculating the foreign tax credit which may be applicable to a Canadian resident. Where the amount of taxes paid exceed 15 per cent, as may be the case where a U.S. citizen is resident in Canada, the excess may be claimed as a tax credit in the United States (Article XXIV Canada U.S. Income Tax Convention (1980)).

We trust this is satisfactory for your purpose.

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