Reporting OAS & CPP/QPP and Form 8833

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marge
Posts: 66
Joined: Mon May 09, 2005 1:26 pm

Reporting OAS & CPP/QPP and Form 8833

Post by marge »

Hi, I'm a dual citizen, US-Canada, residing in Canada. I'm reporting OAS and QPP for the first time. After an extensive search in this forum this past week, I thought I had found out exactly what I needed to do, to comply: Use Form 8833 to take a treaty-based position that the pensions are exempt from U.S. tax, citing Article XVIII.5.

However, I found the wording of Article XVIII on the internet, amended several times--the last seemed to be Protocol 4--and I can't make out how it applies to my case. Here's what it says, as amended (I enclosed the countries and such in brackets, to help me understand):

Paragraph 5 of Article XVIII (Pensions and Annuities) of the Convention shall be deleted and replaced by the following:

"5. Benefits under the social security legislation in a Contracting State [U.S.] (including tier 1 railroad retirement benefits but not including unemployment benefits) paid to a [resident] of the other Contracting State [CANADA] shall be taxable only in that other State [Canada], subject to the following conditions:

(a) a benefit under the social security legislation in the United States paid to a resident of Canada shall be taxable in Canada as though it were a benefit under the Canada Pension Plan, except that 15 per cent of the amount of the benefit shall be exempt from Canadian tax; [n/a to me] and

(b) a benefit under the social security legislation in Canada paid to a [resident of the United States] [n/a to me] shall be taxable in the United States as though it were a benefit under the Social Security Act, except that a type of benefit that is [not] subject to Canadian tax when paid to residents of Canada [OAS etc. are definitely subject to Canadian tax)] shall be exempt from United States tax."


What I understand from that, is that if I were receiving US Social Security (I'm not), then it would be exempt from U.S. tax, and only taxed in Canada. But I don't see how to read this in such a way that an exemption would apply to [b]Canadian[/b] government pensions. If you reverse countries in the brackets, and make the [other] country the U.S., then the pension would only be taxable in the U.S.

Would someone be able to help me on this?

1. And am I reading the article wrong?

2. Are US citizens who are residents of Canada, and pay Canadian taxes, exempted by the treaty from paying US taxes on OAS, CPP and QPP?

If so--
a) Is there an IRS source I can cite as proof? I've read horror stories of one IRS agent contradicting the advice that another IRS agent had given to a taxpayer in a previous year, and then levying huge fines and penalties for filing inaccuracies.

b) Do I use Form 8833? citing Article XVIII.5?

c) Do I include, and then exclude, the pension income on my 1040, as I do with earned income, which I put on line 7, and then exclude on line 21 (I put "Excluded Form 2555-EZ")?

Thank you very much for your help,

Marge
nelsona
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Post by nelsona »

Your OAS and CPP are exempt from US tax, per the article you cite. If you were also getting SS, it too would be exempt from US tax. they would all be taxed in canada, with 15% of SS excluded from any tax. This would normally go on line 20 of your 1040.

Your 8833 would simply state that line 20 is zero by treaty article. Of course, if yo uare getting other pension income, it is reported on other lines (15, 16).

2555 doesn't apply to any pension income. Period. That is for earned income, like wages, as yo usay. But the method of excluding forign income on 2555 is not on line 21. You need to follow the instructions for 2555, which calls for a different way of calculationg tax, not merely excluding it from a regular tax calculation. I;m sure you should be using software to do this, to avoid such a mistake.

The only relief you have from double taxation on any CDn income (other than OAS and CPP) is by form 1116.

If you lived in canada, CPP OAS and SS would not be taxed in canada, but would be reported on line 20 (all minus 15% like any other SS payment) and taxed on 1040.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
marge
Posts: 66
Joined: Mon May 09, 2005 1:26 pm

Post by marge »

Thanks very much for your quick reply; it is much appreciated.

It’s great news that my OAS is excluded from U.S. tax. I’m receiving the Quebec Pension Plan (QPP), which is exactly the same as the CPP, except it’s collected and administered by the province of Quebec—you probably already know this, but I’d like to be sure that you mean that the QPP is excludable, too.

Would I actually put a zero in line 20, and put “form 8833â€￾ on the line next to it? I should explain that I haven’t been using any software. I used TurboTax once a long time ago, but it didn’t seem very helpful to US citizens living outside the States, so I never did again.

About Form 2555, I don’t use it; I use Form 2555-EZ, and this is what it says at the end:

“Foreign earned income exclusion. Enter the smaller of line 16 or line 17 here and in parentheses on Form 1040, line 21. Next to the amount enter “2555-EZ.â€￾ On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22.â€￾

Would that be ok?

Until I start drawing down on my RRSPs, my other passive income has been below the deductions threshold, so I’m still able to dodge form 1116, which I’m delighted about. I’m inordinately afraid of that form!

I’m really hoping that in the last paragraph of your reply, you meant, “If you lived in the U.S….â€￾ instead of “If you lived in Canada…â€￾ because I do live in Canada. Could you please clarify?

Thank you again for your help,

Marge
nelsona
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Post by nelsona »

Yup. Looking at 2555-EZ, it looks like you bypass a lot of calcs doing it this way, so it really is EZ, which is also good for most Cdns (without kids, thos with kids should still use 1116 for earned income). I'd still prefer if you used online software, as this will make sure you don't skip any tax corrections that using 2555 introduces, and will do your 1116's correctly.


I would write -0- on the Social secrity line, and then indicate why it is zero on the 8833.
QPP and CPP are treated exactly the same.

Yes, I meant " if you lived in US..."
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
marge
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Joined: Mon May 09, 2005 1:26 pm

Post by marge »

Oh, thank you!

Your mention of tax software in your last post made me think that maybe I should try using a software program again. So since my last post, I first searched the Serbinski forums to see if I could get a clue as to which software to use, came across a post which seemed to indicate that TurboTax would probably serve me best, since it has a form 8891, and then visited the TurboTax website. I spent a couple of hours searching the site, trying to find out if the software could help me, rather than confuse me further, as it did last time—or if it would ask me questions, but not all the right questions.

An example of this is that, following a meeting with an IRS rep in our U.S. consulate, I’ve been filing as “married filing separately,â€￾ and claiming my husband as an additional exemption. Next to the check box, I’ve been writing the reasons “(N.R.A. with no income from U.S. sources and not a dependent).â€￾ (I know that “married filing jointlyâ€￾ is recommended, but my husband does not wish to open his finances to the IRS, and I respect that. I do have an ITIN number for him however.)

During my searches on the TurboTax site, I saw several question-series about dependents, none of which seemed to lead to the possibility of using that spousal exemption. I did find most of it in a TurboTax blog article, however, which included the following:

“If you are married filing a separate tax return or as head of household, you can claim an exemption for your spouse if your spouse had no gross income, is not filing a tax return and cannot be considered the dependent of another taxpayer.â€￾ (source: http://blog.turbotax.intuit.com/taxes-1 ... explained/ )

The IRS representative had explained to me that if my husband had no income from U.S. sources, that would qualify as “no incomeâ€￾ as far as my U.S. tax filing was concerned.

I tried to contact TurboTax myself, but you can’t seem to contact them unless you’ve already bought the software.

1. So my first question is, do you know if this possibility is addressed by TurboTax’s questions?

2. I didn’t know which version of the software to try, so I tried to ask “Tinaâ€￾ on the TurboTax website. But I didn’t seem to find the right key words. Do you know which version best deals with dual citizen/ Canadian residents’ issues?

I’m more than willing to file a 4868 asking for an extension, and spend the $80 CAD for the software, if there’s a really good chance it will help me to be sure I’m filing correctly. It’s a lot of time and expense, though, if it won’t—which is why I’ve turned to this site to ask these questions.

Thank you very much once again for your help,

Marge
nelsona
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Post by nelsona »

The online version of turbo tax is FREE and works quite well, including 2555 8891 etc. Since you are not e-filing, you can add other forms on paper as you need.

The quote you presented agrees with what the IRS agent said, and both are correct.

"no gross income" in this case means no US sourced income.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
marge
Posts: 66
Joined: Mon May 09, 2005 1:26 pm

Post by marge »

That is the best news!

Thank you so much for everything!

Marge
mackayr
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Joined: Wed Apr 14, 2010 9:37 pm

Post by mackayr »

With regard to the filing of form 8833, my understanding is that it's not required to be filed to take a treaty based position that exempts certain income such as SS, OAS, and CPP for residents of Canada. Citing from "Claiming tax treaty benefits" on the IRS website:

-------------------------------------------------------------------------------------
http://www.irs.gov/businesses/small/int ... 38,00.html

Exceptions

You do not have to file Form 8833 for any of the following situations:

2. You claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants
-------------------------------------------------------------------------------------

Have I misunderstood something?
nelsona
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Post by nelsona »

The situations when one MUST file an 8833 are very limited. failure to file in those instances may carry paenaltiees, etc.

However, most view 8833 has the best way of informing IRS that one is taking a treaty position, rtaher than including a note or other statement. One still will still need at some point to explain why they are excluding income. better to do so at the time, while filing, with the prescibed form.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
andied
Posts: 55
Joined: Wed Feb 09, 2005 11:21 am

Post by andied »

While refreshing my memory RE handling CPP/OAS benefits (US citizen/Cdn resident), the info I have indicates only half of the benefits are exempt. Has this been amended or am I misreading?

Article XVIII, Paragraph 5:
"The United States will also exempt one-half of Canadian social security benefits from
tax if the recipient is a U.S. citizen who is a resident of Canada, under paragraph 7 of Article
XXIX."
nelsona
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Post by nelsona »

I think you must have a VERY OLD copy of the treaty, as that language has
not been in there for at least 15 years.

CPP and OAS are fully taxable in canada for Cdn residents, regardless of citizenship.
SS is 85% taxable in canada only for those living in canada, agan, regardless of citizenship.

None of the above are taxable in US if one is a Cdn resident.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
andied
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Post by andied »

Thanks nelsona, I thought that must be the case; I downloaded a copy of the Treaty from a link from this site, but must have been quite some time ago...thanks again.
JGCA
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Post by JGCA »

I would like to also point out since our poster said that they received QPP that effective Jan 1 2010 the MRQ is now only taxing US SOcial security at 50% unlike teh previous 85% mentioned, this is new for 2010 and is claimed on line 297 under teh code 12.
JG
nelsona
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Post by nelsona »

Not quite correct.

The 50% reduction, which is also available on the Federal return, applies to certain SS recipients who have recieved SS since 1996 and had been living in canada all along.

All others simply get 15% reduction as always.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
JGCA
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Location: Montreal, QC Canada

Post by JGCA »

yes it only became effective though in Quebec in 2010
JG
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