CPP Disability Child Benefit as Non-Resident of Canada

[alfredx]

Hello,

This forum has been extremely helpful with cross-border tax issues and it is very much appreciated. I have a question that I was not able to find by looking through the forum and would really appreciate any insight.

For some context I was a US resident for all of 2023, but due to some trailing RSU liability that was granted while a Canadian tax resident several years ago I am still required to submit a Canadian non-resident Tax Return (because portions of the RSU vested in 2023). As far as I know, this is taxed under the graduation tax rates along with provincial tax.

The issue is that I was given around $2k from the CPP disability Child Benefit because of a parent that had an injury many years ago while I was still a resident. This was paid out as a lump sum in 2023 and I was given a T4A(P). My question is with how is this income included in my taxes?

Based on some research, it seems that because of the tax treaty between US and Canada, CPP Lump sum payments are not taxed by Canada when a non-resident. So I would include the income but then ensure it is deducted from any tax calculations and then report the full amount to the IRS where I will be taxed on it. Is my understanding correct?

Any insight would be appreciated. Thank you in advance!

[nelsona]

Article XVIII.5(b) would apply in this case IF the that benefit would not be taxable in Canada when you lived there.

Was it?

If not, it is not taxable in US either.

If it was, then it would fall under the taxation rules for Social Security Disability payments.

[alfredx]

Thank you Nelsona!

Im not entirely sure what you mean by “IF the that benefit would not be taxable in Canada when you lived there.”?

If I was a resident of Canada in 2023, the benefit would be taxable and included in my income. No taxes were withheld from the payout but I believe that is typical regardless of residency status.

If my understanding of your question is correct, it sounds like it should be included in my US income. I was not aware of Article XVIII.5(b). How does this work with the Social Security Disability payment? Would only 50% of the income be taxed as the treaty states or 85% as my overall income was >$34,000? (Because filing as individual)

Thanks again!

[nelsona]

Reread what I asked" If it was NOT taxable when you lived in canada (I presume you have had this type of income in the past) then it is not if you are in US.

If it WAS taxable in Canada, then it is taxable in US the same wat that particular type of income. You will need to figure out how SS Disability benefits are taxed, and file accordingly.

[alfredx]

My apologies for the late response, I didn’t realized you had replied so quickly.

I never received this benefit when in Canada, it was a one time payment because of time in Canada many years before. (The delay was because of how long it took to process the initial claim). This is why I was confused by your initial question and also why I am confused as to how go about claiming this income under my current tax situation.

It sounds like excluding it from my Canadian income and claiming it under social security in the US is the right approach. I don’t know if Article XVIII.5(b) would apply under this case so I will play it safe and say no.

Thanks for your help!

[nelsona]

Sounds right.
Btw, if your RSU payment was less than $10K US you can exclude it on your Cdn return, by treaty.