Under Article XVIII, pensions and annuities from Canadian sources paid to U.S. residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Canadian pensions and annuities paid to U.S. residents may be taxed by the United States, but the amount of any pension included in income for U.S. tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident.taxmap/pubs/p597-002.htm#en_us_publink1000104521
A pension includes any payment under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments under a sickness, accident, or disability plan. It includes pensions paid by private employers and the government for services rendered.
Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada.
Pensions do not include social security benefits. taxmap/pubs/p597-002.htm#en_us_publink1000126069
A distribution from a Roth IRA is exempt from Canadian tax to the extent it would be exempt from U.S. tax if paid to a U.S. resident. In addition, you may elect to defer any tax in Canada on income accrued within the Roth IRA but not distributed by the Roth IRA. However, you cannot defer tax on any accruals due to contributions made after you become a Canadian resident.taxmap/pubs/p597-002.htm#en_us_publink1000126070
Generally, income that accrues in a Canadian RRSP or RRIF is subject to U.S. tax, even if it is not distributed. However, a U.S. citizen or resident can elect to defer U.S. tax on income from the plan until the income is distributed. Form 8891 is used to make the election.taxmap/pubs/p597-002.htm#en_us_publink1000126071
An annuity is a stated sum payable periodically at stated times, during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). Annuities do not include:
- Non-periodic payments, or
- An annuity the cost of which was deductible for tax purposes.
Special rules apply to pensions and annuities with respect to:
- Short-term assignments,
- Cross-border commuters, and
- Individuals who participate in a Canadian qualifying plan.
Generally, distributions in such cases are deemed to be earned in the country in which the plan is established, without regard to where the services were rendered.
U.S. social security benefits paid to a resident of Canada are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax.taxmap/pubs/p597-002.htm#en_us_publink1000104525
Alimony and similar amounts (including child support payments) from Canadian sources paid to U.S. residents are exempt from Canadian tax. For purposes of U.S. tax, these amounts are excluded from income to the same extent they would be excluded from income in Canada if the recipient was a Canadian resident.