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Dear Sirs:
RE: Treatment of Pension from the XXXXXXXXXX
This is in reply to your letter of November 2, 1992 wherein you requested clarification as to the tax treatment of pension payments received from the XXXXXXXXXX by a resident of Canada, in view of the wording of Article XVIII (Pensions and Annuities) of the Canada-U.S. Income Tax Convention (the "Convention").
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As a resident of Canada you will be taxable in Canada on your world income and therefore you will be required to include in income the pension which you receive from the XXXXXXXXXX. Canada's right to taxation is preserved under paragraph 1 of Article XVIII of the Convention but the portion of any such pension that would be excluded from taxable income in the United States, if the recipient were a resident thereof, will be exempt from tax in Canada.
It should also be noted that pension payments arising in the United States and paid to a resident of Canada, who is the beneficial owner of periodic pension payments, may also be taxed in the United States, however, the tax so charged may not exceed 15% of the gross amount of the periodic pension payments. In order to avoid double taxation, a resident of Canada is permitted to claim a foreign tax credit, against Canadian tax, equal to the lesser of the tax paid to the foreign jurisdiction or the Canadian tax paid on that particular source of income.
We have been advised by a representative of the Internal Revenue Service located in Ottawa that it is their understanding that the payers of the pension payments have the responsibility to provide the payee with a calculation of the exempt portion of his pension payments. Presumably, the payer(s) of the pensions from the XXXXXXXXXX would be in a position to provide you with this calculation since it is likely that they have to provide the same information to U.S. residents. Nevertheless, it is the responsibility of the Canadian resident to obtain this information in order to establish his claim for the exemption provided under Article XVIII of the Convention.
We trust these comments are adequate for your purposes and we are enclosing a copy of Article XVIII of the Convention for your perusal.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch