9 September 2002 External T.I. 2002-0135785 - Netherlands AOW taxable in Canada

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Is AOW from the Netherlands exempt from tax in Canada by virtue of the Canada-Netherlands treaty?

Position: No

Reasons: The treaty was amended in 1993 so that social security paid by the Netherlands may be taxed in Canada.

2002-013578
XXXXXXXXXX S.E. Thomson
(613) 957-2122
September 9, 2002

Dear XXXXXXXXXX:

Re: Taxation of AOW from Netherlands

This is in reply to your letter of April 16, 2002 in which you ask for our comments on the taxation of AOW, which you are receiving from the Netherlands. You are unsure if this amount is taxable in Canada, under of the Canada-Netherlands Income Tax Convention, 1986 (the "Treaty").

We understand that the AOW is a social security pension paid under the Netherlands General Old Age Pensions Act. Under paragraph 56(1)(a) of Canada's Income Tax Act, pension benefits, including social security pensions, are taxable to Canadian residents when received, subject to any relief that may be provided by an income tax convention.

In 1986, Canada and the Netherlands entered into the Treaty. At the time, paragraph 5 of Article 18 of the Treaty read as follows:

Pensions and other similar payments paid under the social security legislation of ... the Netherlands, to an individual who is a resident of Canada, shall be taxable only in the Netherlands.

In 1993, paragraph 5 was deleted. In other words, until 1993, AOW was exempt from taxation in Canada by virtue of the Treaty.

Paragraph 1 of the Treaty now reads:

Pensions, annuities and other similar payments, as well as lump sum payments out of a pension plan... and any pension and other payment paid under the provisions of a social security system, arising in one of the States and paid to a resident of the other State may be taxed in that other State.

As a result, the Treaty no longer prevents Canada from taxing AOW benefits. Accordingly, Canadian residents should include AOW benefits in income, with no offsetting deduction.

For your information, Canada's income tax conventions may be accessed on the Internet at www.fin.gc.ca/treaties/treatystatus_e.html.

We trust that our comments have been helpful.

Yours truly,

Olli Laurikainen
for Director
International & Trusts Division
Income Tax Rulings Directorate
- 2 -