Hi David,
My son has U.S./Canada dual citizenship. He is disabled.
He receives U.S. social security. He also receives B.C.
disability
assistance.
I was told some years back that he doesn't have to declare U.S.
s.s. in
Canada because of some arrangement, (he doesn't need to file U.S.
taxes
because the amount is only $400 hundred a month. Does this still
hold?
Thanks.
---------------------------------
50% of US social security was taxable in Canada until Art XVIII
of the US Canada Income Tax Convention was changed to make it
taxable in the US only. This was effective for 1996 and 1997.
However, halfway through 1997, it was changed again so that 100%
of the Social Security was taxable on line 115 of the Canadian
return and 15% of the Social Security could be deducted on line
256 of the Canadian Return meaning that 85% of the US Social
Security was now taxable in Canada.
When they made it retroactive to 1996 and 1997, the governments
gave the e taxpayer the benefit of the doubt and taxed them at
the lower of the two possible calculations. Since July 29, 1997,
it has been clear that your son's US Social Security has been
taxable in Canada.
Both of the pensions are tax exempt in the USA under The present
Article XVIII of the Convention.
The total of the US Social Security plus the Canadian Pension
Plan would go on line 20a of the US 1040 and line 20b would be
blank. You would file an explanation stating that he was a
resident of Canada and exempt from paying US tax on both the CPP
and FICA under Article XVIII(5) of the US Canada Income Tax
Convention.
The relevant article of the treaty is reproduced here:
5. Benefits under the social security legislation in a
Contracting State (including tier 1 railroad retirement benefits
but not including unemployment benefits) paid to a resident of
the other Contracting State shall be taxable only in that other
State, 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; and
(b) a benefit under the social security legislation in Canada
paid to a resident of the United States 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 shall be exempt
from United States tax.
Wish I had better news for you but he is taxable in Canada on his
US FICA (Social Security). Of course, if he has a disability
certificate for the Tax office as well, then he can get over
$14,000 before he has to pay income tax to Canada.
Hope this helps.
--------------------
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