30 March 1995 External T.I. 9507995 - PRIVATE PENSION AND CPP RECEIVED BY U.S. RESIDENT

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.

		950799
XXXXXXXXXX	David R. Senécal

March 30, 1995

Dear XXXXXXXXXX:

This is in reply to your letter of March 15, 1995, wherein you request our views concerning the tax treatment of certain pension benefits you are receiving, namely, from the Canada Pension Plan ("CPP") and from XXXXXXXXXX.

You indicate in your letter that you have been residing in the United States since
XXXXXXXXXX

In a letter to you dated June 3, 1988, we expressed the view that, as a resident of the United States, who was no longer working as a XXXXXXXXXX
you were not required to pay tax in Canada with respect to either the CPP benefits or the XXXXXXXXXX pension benefits you received after ceasing to be a an

XXXXXXXXXX has asked if, in the opinion of Revenue Canada, this continues to be the case?

In our view, pursuant to the provisions of paragraph 212(1)(h) of the Act, the pension benefits you receive from XXXXXXXXXX continue to be exempt from taxation in Canada.

However, we wish to bring your attention to recently proposed changes to both the Income Tax Act and the Canada-United States Income Tax Convention ("Convention") which will affect the taxation of your CPP benefits.

As stated in our previous letter, a resident of the United States, who is in receipt of benefits paid under the social security legislation of Canada, is exempt from taxation in Canada on these benefits and is taxable in the United States on only one-half of the total amount of the benefit by virtue of paragraph 5 of Article XVIII of the Convention.

However, a Protocol amending the Convention was signed on March 17, 1995. The Protocol, which is expected to enter into force this year, will amend paragraph 5 of Article XVIII to give Canada the sole right to tax benefits paid under the social security legislation of Canada to residents of the United States. Consequently, Finance Minister Paul Martin has announced that non-resident individuals who receive Canada Pension Plan and/or Old Age Security Benefits will become taxable on those benefits as of January 1, 1996. As a result, your CPP benefits will be subject to a withholding tax of 25% as of that date.

The Minister also pointed out that existing provisions of the Income Tax Act will allow a reduction of this tax for those persons with relatively modest amounts of Canadian source taxable income. Detailed information relating to persons that may qualify for this reduction and how to make application for it will be provided to all non-residents in receipt of CPP and Old Age Security benefits.

As, in our view, the provisions of Protocol will grant Canada the sole right to tax your CPP benefits, you may wish to confirm with the Internal Revenue Service that these benefits will no longer be taxable in the United States.

We trust that our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch