8 March 2012 External T.I. 2011-0429881E5 - War XXXXXXXXXX Pension Received from Hong Kong

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a war XXXXXXXXXX pension received from Hong Kong Special Administrative Region by a resident of Canada is exempt from tax in Canada.

Position: Not enough information to provide a definitive answer.

Reasons: The payment must meet the requirements under paragraph 81(1)(e) of the Act.

XXXXXXXXXX
2011-042988
Victor Pietrow

March 8, 2012

Dear XXXXXXXXXX :

Re: War Pension from Hong Kong

This is in response to your letter of November 28, 2011, in which you requested our confirmation that the Hong Kong War Memorial Pension that you receive from the Hong Kong Special Administrative Region of the People's Republic of China ("Hong Kong SAR") XXXXXXXXXX during the Second World War is exempt from Canadian income tax. For the purpose of responding to your query, we have assumed that you are a resident of Canada.

The particular situation outlined in your correspondence appears to relate to a factual one, involving one or more specific taxpayers. It is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. We are, however, prepared to provide the following general comments which may be of assistance.

Unless otherwise stated, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

In general terms, where a resident of Canada receives an amount on account or in lieu of payment of, or in satisfaction of, "a superannuation or pension benefit" arising in a particular country, the full amount received, before withholding taxes, is taxable under subparagraph 56(1)(a)(i) of the Act unless a specific provision of the Act or an income tax convention between Canada and the particular country applies to exclude the amount. Canada does not currently have an income tax convention with Hong Kong SAR. Canadian courts have confirmed that, notwithstanding the unification of Hong Kong and China, Hong Kong has maintained its own tax system and the income tax convention between Canada and China does not apply to Hong Kong SAR.

However, under paragraph 81(1)(e) of the Act, a pension payment received from a particular country by a resident of Canada will be exempt from taxation in Canada if the payment meets the following criteria:

• the payment is a pension payment;
• it is received on account of disability or death;
• the disability or death must have arisen out of a war;
• the particular country must have been an ally of Canada at the time of the war; and
• the particular country must grant substantially similar relief to payments referred to in paragraph 81(1)(d) of the Act arising in Canada received by a resident of the particular country.

Paragraph 81(1)(d) exempts from taxation a pension payment, an allowance or compensation received under or subject to the Pension Act, the Civilian War-related Benefits Act or the War Veterans Allowance Act, an amount received under the Gallantry Awards Order or compensation received under the regulations made under section 9 of the Aeronautics Act. Paragraph 13 of IT-397R (Amounts Excluded from Income - Statutory Exemptions and Certain Service or RCMP Pensions, Allowances and Compensation) lists allies of Canada during the Second World War.

In our view, for the purposes of paragraph 81(1)(e), we would consider a pension received from Hong Kong SAR to be a pension received from a country that was an ally of Canada at the time of the Second World War.

Based on the limited information provided to us, we are unable to provide an opinion in respect of the specific situation outlined in your letter. In particular, it is not clear, based on the information provided, whether the XXXXXXXXXX pension you receive from Hong Kong SAR is on account of death or disability arising out of a war, nor is it clear whether Hong Kong SAR grants substantially similar relief to payments referred to in paragraph 81(1)(d) of the Act arising in Canada received by a resident of Hong Kong SAR. We trust, however, that the above comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch