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Ottawa, December 23, 1997
1997-125
Details Announced on Seniors' U.S. Tax Refunds
Related document:
Finance Minister Paul Martin and Revenue Minister Herb Dhaliwal today released details of how an amendment to the Canada-U.S. tax treaty will be implemented affecting Canadian residents who collect U.S. social security benefits.
The agreement amending the tax treaty, which came into force on December 16, 1997, means that U.S. social security benefits paid to Canadian residents will be taxable only in Canada. As many as 55,000 recipients of U.S. social security benefits, mostly seniors and persons with disabilities, may qualify for refunds under this agreement.
Until the Canada-U.S. tax treaty was amended, it allowed the U.S. to apply its flat tax of 25.5% to most recipients' payments, starting with the payment for January 1996. The new agreement means that tax withheld by the U.S. for 1996 and 1997 will be refunded (net of Canadian federal and provincial income tax) to any recipient whose Canadian tax on the benefit would be less than the U.S. tax.
Revenue Canada will administer the refund program.
"For those recipients who have filed their 1996 Canadian tax returns, we plan to begin issuing refund cheques early in 1998," said Minister Dhaliwal. "For the 1997 tax year, the processing of refunds will begin as soon as Revenue Canada receives the information from the U.S., probably in late 1998."
In addition, in accordance with proposed legislation, the Government of Canada will compensate Canadian residents for the period during which the U.S. tax was withheld.
"On top of the actual refund amount from the U.S., the Government of Canada is proposing to pay each refund recipient an amount in lieu of interest, computed according to Canada's rules for income tax refunds," Minister Martin explained. "A further $50 will also be added for each of 1996 and 1997 to compensate for the period before normal tax interest would start."
Mr. Dhaliwal noted that refunds to Quebec recipients will require a separate provincial tax reassessment. However, Revenue Canada and Revenu Quebec are working together to accelerate this process.
Draft legislation with respect to the payments is attached.
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For further information on the refund process:
Revenue Canada
1-800-959-8281 (English)
1-800-959-7383 (French)
1-800-665-0354 (telecommunications device for the hearing impaired/deaf - bilingual)
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For further information on the attached draft legislation:
Lawrence Purdy
Tax Legislation Division
(613) 996-0602
Draft Income Tax Act Amendment
1. The Income Tax Act is amended by adding the following after section 122.6:
United States tax on social security -
Definitions
122.7 (1) The definitions in this subsection apply in this section.
"Convention"
« Convention »
"Convention" has the meaning assigned by section 2 of the Canada-United States Tax Convention Act, 1984.
"creditable United States tax"
« impôt des États-Unis imputable »
"creditable United States tax" of an individual for a taxation year means an amount:
(a) that was paid to the government of the United States by or on behalf of the individual, at a time when the individual was resident in Canada, on account of United States tax on the individual's United States social security benefits for the year,
(b) that would have been so payable to that government if the Convention had not been amended by the Protocol signed at Ottawa on July 29, 1997, and
(c) that is refundable by that government under the terms of the Convention.
"United States social security benefits"
« prestations de sécurité sociale des États-Unis »
"United States social security benefits" of an individual for a particular taxation year includes:
(a) benefits of the United States Social Security Administration, and
(b) tier 1 railroad benefits of the United States Railroad Retirement Board.
paid to or for the benefit of the individual in the particular year (but does not include unemployment benefits) and, for the purpose of this definition, a benefit paid in a year for the following year is deemed to have been paid in that following year.
Additional Amount
(2) Each individual who has paid creditable United States tax for a taxation year is deemed to have paid the amount of $50, on the individual's balance-due day for the year, on account of the individual's tax payable under this Part for the year.
Interest
(3) For the purpose of determining interest payable under this Act by or to an individual, the individual's creditable United States tax for a taxation year is deemed:
(a) to have been paid, on the individual's balance-due day for the year, on account of the individual's tax payable under this Part for the year, and
(b) to have been refunded to the individual on the first day on which the Minister, in respect of the individual's creditable United States tax:
(i) pays an amount to or for the benefit of the individual, or
(ii) applies an amount to a liability of the individual.
2. Section 1 applies to the 1996 and 1997 taxation years.
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