Questioning Treaty Article XVIII (5) for USC in Canada

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
K104XYZ
Posts: 18
Joined: Sun May 18, 2014 11:05 am
Location: Calgary AB

Questioning Treaty Article XVIII (5) for USC in Canada

Post by K104XYZ »

Over a number of years, advice in this forum, and on other tax-advice websites, has indicated that CPP retirement benefits and OAS benefits received by a US Citizen residing in Canada are taxable only in Canada, and not taxable on the US tax return.

It has been indicated that the Canadian-resident USC should show the amount of the benefits on Line 20a of Form 1040, and show $0 on Line 20b. Optionally, or perhaps recommended, the USC can indicate on an accompanying Form 8833 that the amount of the CPP and OAS benefit has been reduced to $0 by treaty – Article XVIII (5) is commonly cited as the reference.

I am still somewhat perplexed by the current wording of Article XVIII (5), and wondering how it operates to exclude or render non-taxable, on a US tax return, the CPP/OAS income received by a USC residing in Canada, because the wording of Article XVIII (5) has, since the implementation of the Fourth Protocol in 1997, referred solely to social security benefits from one Contracting State being paid to a resident of the other Contracting State as being taxable only in that other State. (Much older versions of the treaty did make specific special reference to US Citizens).

I can’t quite rationalize how I can cite Article XVIII (5) as being the authority for a USC resident in Canada to exclude (reduce to $0) Canadian social security income on the US tax return, when the article doesn’t appear to address this situation. Am I not reading it right, or am I just being too technical about the wording of the article? Should it just be considered that the “spirit and intentâ€￾ of the article is to render social security benefits to be taxable only in the country in which the recipient lives? Thank for any thoughts on this …

Presumably many people have successfully filed under the recommended process, probably citing this article, and have not had any problems? I am just looking now at reporting CPP income for the first time.

Other than a treaty article to hang my hat on, there is a Q&A on the IRS website which says that: “If the recipient (of CPP/OAS) is a US Citizen who is a resident of Canada, the benefits are taxable only in Canadaâ€￾. So that’s a good back-up reference, I suppose.
Lehn
Posts: 1
Joined: Sun Mar 08, 2015 2:08 pm

Post by Lehn »

I have used this article every year with not issues
Whistler
Posts: 1
Joined: Sun Mar 08, 2015 2:17 pm

Post by Whistler »

For the past few years I have sued this article of the treaty with no problem or issues.
Stevecanada
Posts: 24
Joined: Sun Mar 30, 2014 4:21 pm
Location: Canada

Post by Stevecanada »

I have the exact same question as K104XYZ above. I can't understand how Article XVIII (5) of the Canada-US Tax Treaty applies to a USC /Canadian resident who receives CPP and OAS.

Can anyone help explain this?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

It means that those (along with any SS you may receive) are not taxable in US.
The simplest way to report this is by including them in your SS gross and making the net zero.

The treaty states that social payments from either country are only taxable in country of residence.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Post Reply