News release

Tax treaty implications for U.S. residents receiving OAS, CPP/QPP

OTTAWA, December 29, 1997...Revenue Canada announced today that the new tax agreement Canada has reached with the United States may provide refunds for U.S. residents receiving Canadian social security benefits. Under the new agreement, which came into force December 16, 1997, Canadian Old Age Security (OAS) and Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) benefits paid to U.S. residents will be taxable only in the United States. Beginning in January 1998, Canadian tax will not be withheld from benefit payments made to U.S. residents.

Prior to this, the Canada-U.S. tax treaty allowed Canada to withhold non-resident tax at a rate of 25% on all outbound Canadian social security benefits, starting with the payment for January 1996.

The new agreement provides that Canadian tax withheld in 1996 and 1997 may be refunded (net of other Canadian federal income tax owing) to any U.S. resident whose U.S. tax on the benefit would be less than the Canadian tax, and who files an application with Revenue Canada. This means that U.S. residents receiving OAS and CPP/QPP benefits can apply for a refund of tax paid to Canada for 1996 and 1997 if they choose to be taxed in the U.S.

U.S. residents who choose to be taxed in the United States on their Canadian benefits for the 1996 or 1997 tax years are required to file the applicable income tax return in the United States, or to amend the United States income tax return already filed, to include their Canadian social security benefits.

As many as 50,000 recipients of Canadian social security benefits, mostly seniors and persons with disabilities, may qualify for refunds under this agreement.

It will be the responsibility of the U.S. resident to determine if it is more beneficial to be taxed in the United States. By the end of February 1998, Revenue Canada intends to have application forms mailed to all individuals who received Canadian benefits in 1996 or 1997 and whose records indicate they are resident in the U.S. Affected U.S. residents who do not receive an application form by the end of February should contact the International Tax Services Office at 1 800 661 7896.

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