How are US pensions taxed in Canada

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Question

I moved back to Canada a few years ago and will be starting to draw on my US pension in the coming months.

How will my US pension be taxed in Canada?

Answer

Hi, thanks for your question, however considering I don’t know much about your situation let me give you the basics:

  • US pension income will be taxable both in Canada and the US (assuming you’re also a Canadian resident)
  • The amount of US tax you pay will be different depending on whether or not you’re a US Citizen, Green card holder or a non-resident of the US
  • For US citizens and green card holders the US pensions will first be taxed (the taxable portion on the 1099-R) in the US on your 1040 return at regular rates. Note however that if your average US tax rate is more than 15% (maximum under the treaty) you’ll need to resource enough tax via form 1116 to ensure only 15% tax is paid to the US.
  • For non-residents of the US the pension income will attract a 15% US withholding tax that will be the final US tax for any distribution
  • For Canadian purposes the full amount of taxable pension per the 1099-R will be converted to Canadian dollars at the average USD/CAD rates and taxed at regular Canadian graduated rates.
  • Any US tax you paid on the pension income (either as a US citizen, green card holder or non-resident) will be available as a foreign tax credit on your Canadian income tax return. As mentioned above the maximum allowable to claim is 15% under the treaty.
  • In some cases lump sum pension payments will attract a 30% withholding rate, however administratively CRA and the IRS often only allow for the flat 15% rate.
  • Social security payments however are taxed completely differently. Under the treaty social security payments are only taxable in the country of residence. Therefore, for US citizens living in Canada that are currently receiving US social security payments these payments will be taxable only in Canada. Make sure to properly file your 8833 treaty election forms to properly disclose the fact that you’re not reporting the SS payments on your annual 1040 return.

Also note that most US pensions (excluding IRAs) will be available to pension split with a spouse. However, in cases where you income split with your spouse please ensure to also allocated the foreign taxes paid to the spouse so they can also claim their portion of foreign taxes.

Hope that helps and please let me know if you have any further questions.

Cheers

Phil

10 COMMENTS

  1. > Social security payments however are taxed completely differently. Under the treaty social security payments are only taxable in the country of residence. Therefore, for US citizens living in Canada that are currently receiving US social security payments these payments will be taxable only in Canada. Make sure to properly file your 8833 treaty election forms to properly disclose the fact that you’re not reporting the SS payments on your annual 1040 return.

    Does this apply even for non-US citizens (e.g. green card holders who gave up their green cards)?

  2. Dear Phil,

    I have a question for you. I am a Canadian citizen but have dual citizenship. I receive Social Security Survivors Benefits under $12,000 yearly. Do I have to pay taxes on U.S. Survivors Benefits, as a widow, now living in Canada to the Canadian gov’t? Thank-you.

    E.F.

  3. Hi Phil, I am a Canadian Citizen applying for a Canadian OAS. My husband is a US citizen recieving a US Social Security. We live seperately in our Countries. Am I required to give information on his income for my application? I understand if something happens to him and I want to recieve his Social Security I would have to file both in the US and Canada. Would his income affect my Canadian OAP amount?

  4. Hi Phil- I saw your youtube video on Pensions and Social Security. I am a dual citizen in US and Canada. For the past five years I have been reporting my Social Security on my US Return. There is a small amount of tax that is generated by doing that. I have shown the taxable amount of SS as resourced on Form 1116 and taken the Foreign Tax credit on the amount that is taxed. I have not taken any tax credit on the Canadian return. After seeing your video I realize I am doing it incorrectly. Should I amend the last three years of US returns and file the 8833 or can I continue to file the way I have?

  5. Hi Phil- I hope this is not a duplicate post on my part.
    I am a dual citizen of US and Canada living in Canada. I saw your Youtube video on Pensions. I have been filing my US return for the past five years and have reported my Social Security payments on the US and Canada returns. A small amount is taxed in the US. I have taken the Foreign tax Credit on my 1040 for the amount of Canadian tax paid on the Social Security. After seeing your video, I realize I am doing it incorrectly. Should I amend the past three years and exclude the Social Security and file Form 8833 or just correct my filings going forward? Thank you.

  6. Hi.
    Reading the general instructions for the 8833 form:

    “Positions for which reporting is waived include, but are not limited to, the following. See Regulations section 301.6114-1(c) for other waivers from reporting.
    • That a treaty reduces or modifies the taxation of income derived by an individual from dependent personal services, pensions, annuities, social security, and other public pensions,…”

    This would seem to suggest that filing an 8833 to report exclusion of SS income based on the treaty is not required.

    Thoughts?

  7. Hi Phil,

    My husband is a American veteran with a 100% service related Disability rating. Because of this, he receives Disability benefits from the VA. Me and him have been both pulling our hair out trying to figure out how this will be taxed in Canada (in the US, this income is not taxed at all). Could you please provide more clarity on this?

    Thank you!

  8. Good Night Phil,
    I just watched you video, great job. Here is my question. Last year I started receiving social security payments from the US. I am a Canadian living in Canada. Can I spilt my payments between my wife and I?

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