30 January 2004 Internal T.I. 2004-0054981I7 - Social Security - Cyprus

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 Canada's right to tax social security pension payments arising in Canada is limited to the reduced rate under paragraph 1 of Article 18 of the Canada-Cyprus convention and subject to the Cnd$10,000 exemption.

Position: Yes

Reasons: Even if paragraph 5 of the Convention provides that social security pension payments arising in Canada could only be taxed in Canada, such payments are not carved out from the ambit of paragraph 1 and, consequently, the reduced rate and exemption also apply to periodic social security pension payments. XXXXXXXXXX

							January 30, 2004

Income Tax Appeals Division				Sophie Chatel
333 Laurier Avenue West
Ottawa ON  K1A 0L9

Attention: Janine Dunphy
2004-005498

Social Security Payments under the Canada-Cyprus Convention - Article 18

This is in reply to your enquiry of January 6, 2004 wherein you requested our views on application of the Canada-Cyprus Convention (the "Convention") in respect of payments under Canada's social security system.

Our view is that payments under Canada's social security system such as Old Age Security and the Canada Pension Plan benefits are generally "pensions" under Article 18 of the Convention. Paragraph 5 of Article 18 of the Convention provides that social security pensions arising in Canada and paid to a resident of Cyprus are only taxable in Canada. However, that paragraph does not mention at what rate Canada may tax. Since social security pension payments are not carved out of the ambit of paragraph 1 of Article 18, Canada's right to tax periodic social security pension payments arising in Canada is limited to the reduced rate of 15% provided therein. Moreover, paragraph 1 of the Convention also provides that the first CND$10,000 of pension payments (periodic payments or lump sum payments) are exempt from tax in the country in which they arise. Consequently, the first CND$10,000 of social security pension payments is not taxable in either Canada or Cyprus.

Please note that we are currently revising IC 76-12R6 to reflect this position, for Cyprus and for other countries as well.

We hope that these comments are of assistance.

Yours truly,

Olli Laurikainen
Section Manager
for Division Director
International Section
Income Tax Rulings Directorate
Policy and Planning Branch