Rev. Rul. 62-179

Advice has been requested concerning the Federal income tax treatment of pension payments made by the Canadian Government under the Old Age Security Act of Canada, Revised Statutes of Canada, 1952, as amended, to Canadian citizens residing in the United States.

Section 3 of the Old Age Security Act of Canada, as amended, provides, in effect, that every Canadian citizen who has attained the age of 70 years and who meets certain residence requirements in Canada may be paid, upon his properly approved application, a monthly pension of $55 by the Canadian Government. Section 4 of this Act provides that the pension is payable during the life of the pensioner and ceases with the payment for the month in which the pensioner dies.

Section 5 of the Act, as amended by the Act of June 7, 1960, provides, in part, that where a pensioner absents himself from Canada for 6 consecutive months, exclusive of the month in which he left Canada, payment of his pension may be continued for any period he remains out of Canada after those 6 months if he establishes that, at the time he left Canada, he had resided in Canada for at least 25 years after attaining the age of 21 years. Section 3 of the Act of June 7, 1960, provides transitional rules with respect to pensioners who were absent from Canada on the effective date of that Act and whose pension payments were suspended under section 5(1) of the Act as in force before such effective date.

Section 10 of the Act provides the method of collecting revenue for the payment of pensions through the imposition of an old age security tax on the sales price of certain goods and on individuals and corporations liable to pay income tax for the taxable year.

Pension payments received by Canadian citizens under the Old Age Security Act are includible in their gross income for Canadian income tax purposes under the provisions of section 6(1)(a)(iv) of the Income Tax Act of Canada, Revised Statutes of Canada, 1952.

In general, resident alien individuals of the United States are subject to Federal income tax on income derived from sources within or without the United States. See section 1.1-1(b) of the Income Tax Regulations.

Section 61(a) of the Internal Revenue Code of 1954 provides that, except as otherwise provided, gross income means all income from whatever source derived, including among other things, pensions.

Section 1.61-11(a) of the regulations provides that pensions and retirement allowances paid either by the Government or by private persons constitute gross income unless specifically excluded by law.

There is no provision in the Code which provides that old age pensions received by resident aliens of the United States from a foreign government may be excluded from gross income for Federal income tax purposes. Furthermore, Article VI A of the United States-Canada Income Tax Convention, C.B. 1955-1, 624, at 626, modified as to other provisions by the Supplementary Convention of August 8, 1956, C.B. 1957-2, 1014, provides that pensions (including Government pensions) derived from within one of the contracting States by a resident of the other contracting State shall be exempt from taxation in the former State, rather than in the State of residence, so that nothing in the Convention would exempt from Federal income tax a pension paid by the Canadian Government to a citizen of Canada residing in the United States.

In view of the foregoing, it is held that pension payments made by the Canadian Government under the Old Age Security Act of Canada to Canadian citizens residing in the United States are includible in the gross income of the recipients for Federal income tax purposes.