CRA indicates that an exceptional COVID-related withdrawal from a Chilean pension plan qualified as an exempted pension under the Canada-Chile Treaty

The Chilean government, in response to the pandemic, adopted an exceptional measure in 2020, permitting the withdrawal of up to 10% of the pension savings in the individual pension accounts managed by the Chilean pensions authority. CRA noted that such a withdrawal could qualify as a superannuation or pension benefit for Canadian purposes (and, therefore, apparently as a “pension” payment for purposes of the Canada-Chile Treaty) notwithstanding being an exceptional single foreign-source payment. It then indicated that if it so qualified and was paid to a Canadian resident, it would only be taxable in the state in which it arose (Chile), so that the recipient would be entitled to a taxable-income deduction under s. 110(1)(f)(i).

Neal Armstrong. Summary of 12 December 2023 External T.I. 2021-0881541E5 under Treaties – Income Tax Conventions – Art. 18.