PLEASE NOTE: THIS INFORMATION WAS ORIGINALLY SUBMITTED BY COOPERS & LYBRAND, CANADA
In a previous article, "Canada-United States Tax Treaty Changes", we discussed the draft protocol to amend the current tax treaty between Canada and the United States. This draft protocol, initialled on April 9, 1997, will, when ratified by both countries, significantly affect how cross-border social security benefits are taxed. The following lists some frequently-asked questions concerning the changes in social security benefit taxation and related "answers" provided by Finance Canada officials.
1. How Will The Proposed Agreement Affect The Taxation Of Social Security Payments?
Since the beginning of 1996, each country has had the sole right to tax the benefits it pays to residents of the other country (see question 2 in sections II and III for details). The proposed new rule permits only the country where the recipient lives to tax the benefit (see question 3 in sections II and III for details).
The new rules will be fairer, as they will take greater account of individual circumstances, particularly in the case of Canadians who receive U.S. social security benefits. Lower-income Canadian recipients of U.S. benefits will be helped the most. Thousands of retired Canadians and Canadians with disabilities will no longer have to pay any tax at all, and thousands more will pay less than they otherwise would.
The change will apply right back to January 1, 1996, when U.S. tax first started to apply to Canadian residents. Any excess tax will be refunded retroactively, but nobody's tax will be increased for the retroactive period.
2. Is The Text Of The Proposed Agreement Available?
Not yet. The text of the proposed agreement (known as a protocol) will be made public after it has been signed. We expect it to be signed during the summer of 1997.
3. When Will The Changes Take Effect?
The proposed protocol will become law only when it has been signed and ratified in both countries. It will then apply to all social security benefits paid after 1995.
4. When Will The Protocol Be Signed And Ratified?
We expect to sign the proposed protocol during the summer of 1997.
Once it has been signed, the protocol must be ratified. In Canada, Parliament must approve the protocol. In the United States, it must be approved by the U.S. Senate. We hope the process will be completed before the end of 1997.
5. Where Can I Get More Information?
The following notes answer the most common questions about these changes. These answers assume that the protocol will be ratified between September 1, 1997 and December 31, 1997. If it is ratified before September 1 or after December 31, some of the details will change, and these questions and answers will be updated.
The information provided herein is for general guidance on matters of interest only. The application and impact of laws, regulations and administrative practices can vary widely, based on the specific facts involved. In addition, laws, regulations and administrative practices are continually being revised. Accordingly, this information is not intended to constitute legal, accounting, tax, investment or other professional advice or service.
While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of this information without first consulting a Coopers & Lybrand professional. Should you have any questions concerning the information provided herein or require specific advice, please contact your Coopers & Lybrand advisor, or:
David W. Steele
145 King Street West
Toronto, Ontario M5H 1V8
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Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.
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