US Social Security received by CDN res. 50% taxable now?

[mackayr]

US citizen has been resident in Canada and has been receiving US Social Security continuously since 1996. I understand that only 50% of the SS is taxable now in Canada (as opposed to 85% as it has been for years).

Does this "break" article XVIII of the treaty? Normally, this income would have been at least partially taxable to him on his 1040 (subject to income thresholds), but the treaty provides that it's only taxable in Canada for Canadian residents (even for US citizens). However, the treaty specifies that 85% of it is taxable in Canada. Whereas now the ITA has been modified to provide for only 50% to be taxed, does the exemption on the US return still apply, or must one claim 85% on the Canadian return in order to exempt it on the US return.

What's triggering my question is merely that my tax software prompts me to enter foreign tax paid with respect to US Social Security when I indicate that it's subject to the 50% rule, whereas it does not give such a prompt when 85% of it is taxed. I wouldn't have given it a second thought otherwise.

Thanks!

[mackayr]

Clarification:

The 50% exemption ONLY applies if someone has been resident in Canada and has been receiving US Social Security since before 1996. I didn't make that clear in my first post.

[nelsona]

Since SS is completely exempt from US tax when recieved by a Cdn resident, there should be no reporting of any Cdn tax on the US return -- the income is completely exempt.

One should either simply reduce ones AGI by removing that income on theie 1040 (line 20a/20b attaching an 8833 to explain). or if more correctly, one uses the re-sourced by treaty method, and simply exempts as much tax that is needed to reduce the US tax that would otherwise by incurred to zero.

And the treaty only limits tax to a certain percentage, it does not force a country to tax it at that rate.