Principal Issues: Whether amounts received by a permanent resident of Canada under the US Economic Income Payment program would be included in income
Position: Likely no
Reasons: The amount is considered an advanced payment of a 2020 refundable tax credit, and therefore is likely not income from a source under the Income Tax Act.
August 31, 2020
Costa Dimitrakopoulos Income Tax Rulings Directorate Director General Eric Wirag, CMA, CPA Income Tax Rulings Directorate Canada Revenue Agency
FILE 2020-085181
SUBJECT: U.S. Economic Income Payment Program
We are providing our comments regarding whether a payment received under the U.S. Economic Income Payment Program (US EIP) by a permanent resident of Canada would be included in the income of that recipient for purposes of the Income Tax Act.
The US EIP is part of an economic stimulus package under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.”
Our understanding is that the US EIP is a refundable tax credit for U.S. citizens and U.S. resident aliens. The tax credit is up to “$1,200 for individual or head of household filers, and $2,400 for married filing jointly if they are not a dependent of another taxpayer and have a work eligible Social Security number.” Most eligible individuals receive an advance payment of the tax credit in 2020. The tax credit is adjusted if adjusted gross income reaches certain thresholds, and is fully eliminated if adjusted gross income exceeds $99,000 for individuals filing as single or married filing separately, $136,500 for head of household, and $198,000 for those filing as married filing jointly.
Advance payment of the tax credit is generally automatically paid to eligible recipients based on filed U.S. income tax returns for 2018 or 2019, or to those who usually do not file tax returns but are eligible for certain U.S. federal benefits. For those individuals who are eligible for the EIP but who do not fall into either of these groups, registration on the Internal Revenue Service website is required in order to receive the payment.
Individuals who are claimed as a dependant on another individual’s U.S income tax return, those without a valid Social Security number, non-resident aliens, and those who filed Form 1040-NR, Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for 2019 are also excluded from receiving the US EIP.
Our comments:
If an individual is a resident of Canada for income tax purposes, they are subject to income tax in Canada on their worldwide income; that is, on their income, whether it be Canadian source or foreign source income.
In our view, the amount of any Advance Payment received, or Tax Credit claimed, under the US EIP by a Canadian resident individual, would not be required to be included in the individual’s income under the Income Tax Act. In this respect, we would not consider a reduction of U.S. income taxes in the circumstances described (either in the form of a Tax Credit or an Advance Payment) to be income from a source for Canadian income tax purposes and hence not taxable.
We trust our comments will be of assistance.
Lita Krantz, CPA, CA
Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
UNCLASSIFIED