| 19(1) | File No. 900321 |
| A.B. Adler | |
| (613) 957-8962 |
April 19, 1990
Dear Sirs,
This is in reply to your letter of April 3, 1990 concerning whether certain benefits paid by the United States Railroad Retirement Board qualify for relief under Article XVIII 5. of the Canada-U.S. Income Tax Convention (1980) ("Convention").
We understand that the benefits in question are those Tier 1 Benefits that are equivalent to the U.S. social security benefits that railroad employees would otherwise be entitled to receive if their service had been covered under the U.S. social security system.
Our comments follow:
All Tier 1 Benefits received by a resident of Canada are required to be included in the taxpayer's income under subparagraph 56(1)(a)(i) of the Income Tax Act ("Act"). However, to the extent that such benefits are those described above they will be treated as social security benefits to which Article XVIII 5. of the Convention applies. A recipient of such social security benefits who is a Canadian citizen will be entitled to a deduction of one-half thereof under subparagraph 110(1)(f)(i) of the Act. Further, we understand that U.S. tax withholding will not be exigible thereon.
In a case where the Canadian resident receiving such benefits is a U.S. citizen we understand that the U.S. is not required to exempt U.S. social security payments form tax withholding. However, because a U.S. citizen will be filing a form 1040 - U.S. Individual Income Tax Return, the recipient may elect to reduce tax withholdings to a level which will appropriate taxes otherwise payable to the U.S. Government. We suggest that you write to the U.S. Railroad Retirement Board for information concerning this procedure.
We trust that our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate