30 April 1990 Ruling HBW40003B F - Canada-U.S. Income Tax Convention on Pensions

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.

April 30, 1990

Dear 19(1)

We are writing in regards to your letter dated April 14, 1990, concerning the tax treatment of certain pensions upon immigration to Canada.

Pursuant to Article 18 of the Canada-United States Income Tax Convention, pensions (other than benefits received under U.S. social security legislation or pensions that would otherwise be exempt form U.S. tax if you remained a resident thereof) arising in the United States and paid to a resident of Canada (i.e. you would be considered a resident of Canada upon immigration) may be taxed in both countries.  The tax in the United States would be limited to a 15% withholding tax.  Canada would allow a foreign tax credit (i.e. a credit against Canadian tax payable) for U.S. taxes withheld, not exceeding, however, the Canadian taxes attributable to that particular foreign pension.  This will ensure there is no element of double taxation.  You would effectively be subject to the higher rate of tax between the two countries.

Under the Canadian tax systems, residents of Canada are liable for tax on their taxable income.  Taxable income generally includes the person's overall income (i.e. including income from employment, business, investments, pensions, etc.) from both domestic and foreign sources.  The applicable federal and provincial tax rates progress as taxable income increases.  In this regard, we have enclosed a 1989 General Tax Guide and Return for Residents of British Columbia which will allow you to determine what your 1989 federal and provincial taxes would have been.

The following comments may be useful when calculating taxes payable.

1.     Like all other taxpayers, pensioners may deduct from taxes payable a basic personal credit of $1031.22.  Those aged 65 or over may claim an additional credit of $556.24.

2.     A taxpayer may also claim a credit for his spouse of $859.35. If however, the spouse's income is in excess of $506.00, the $859.35 must be reduced by 17% of the excess.  If the spouse is 65 or over, the taxpayer may be entitled to claim all or part of the spouse's age credit, depending on the spouse's income. We should point out that your spouse's net income will include her pension income.

3.     A taxpayer may also be entitled to a disability credit and all or part of his spouse's disability credit.  This credit of $556.24 is available to persons who have a severe and prolonged mental or physical impairment.

4.     Person's aged 60 or over may be entitled to a pension income credit of up to $170.00.  The exact amount depends on the person's age and circumstances and the amount of qualifying pension income received.  In this regard, you pension income from the U.S. would be eligible so long as it is received from a pension plan or fund as a life annuity.

5.     Pension income is taxed in the year received.

6.     The family is not taxed as a unit; individual members are taxed separately depending on their own income.  There are no joint returns for husband and wife.

7.     When looking up your individual surtax and British Columbia tax (i.e. Tax Table B), please ensure you deduct any credits  described in paragraphs 1 to 4 above from the federal tax figure obtained from Tax Table A.

We trust you will find the above information to your satisfaction. We have enclosed some additional publications that may be of interest to you.  If we can be of further assistance, please do not hesitate to contact us.

Yours sincerely,

C. Savage   A/DirectorProvincial and International  Relations Division

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