Americans living in Canada who received U.S. government assistance related to the Covid-19 pandemic will not have to include these amounts in income on their Canadian tax returns, the Canada Revenue Agency (CRA) said in a recent technical interpretation.
“The amount of any advance payment received, or tax credit claimed, under the U.S. EIP [Economic Income Payment Program] by a Canadian resident individual, would not be required to be included in the individual’s income under the Income Tax Act,” the CRA interpretation dated Aug. 31 stated.
A technical interpretation provides the CRA’s interpretation of specific provisions of Canadian income tax law. However, the interpretation does not itself determine the tax treatment of a taxpayer’s particular situation.
The U.S. EIP, which is part of an economic stimulus package under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), is a refundable tax credit for U.S. citizens and U.S. resident aliens. Under the program, taxpayers automatically received a payment of up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child. Most eligible individuals receive an advance payment of the tax credit in 2020.
The tax credit is adjusted lower once adjusted gross income reaches certain threshold amounts and eliminated entirely for single filers with income exceeding $99,000, and for joint filers without children with income exceeding $198,000.
In the interpretation, the CRA noted that a resident of Canada for income tax purposes is “subject to income tax in Canada on their worldwide income; that is, on their income, whether it be Canadian source or foreign source income.”
However, in the case of U.S. EIP, “we would not consider a reduction of U.S. income taxes in the circumstances described — either in the form of a tax credit or an advance payment — to be income from a source for Canadian income tax purposes and hence not taxable.”
The CRA’s interpretation will be “welcome news to the thousands of U.S. citizens living in Canada who may have received a U.S. EIP cheque this year,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management.
“It means they will be able to keep 100% of the U.S. government assistance — assuming their income is below the limits — without needing to set aside any for Canadian income taxes.”