CRA considers that the capital portion of annuity payments made to a Turkish resident are subject to withholding

The definition of “annuity” in Art. 18 of the Canada-Turkey Treaty excludes “any annuity the cost of which was deductible for the purposes of taxation in the Contracting State in which it was acquired.” Where a resident of Turkey has acquired a prescribed annuity contract, it could be argued that the portion of each annuity payment that would be treated in the hands of a Canadian resident as a capital payment comes within the quoted exclusion. However, CRA considers that this is not the case given inter alia that the capital portion does not represent a deduction for the cost of the annuity that is available when the annuity is acquired, so that each annuity payment is subject to the (Treaty-reduced) Part XIII tax of 15%.

In the case of an RRSP annuity, the RRSP contributions were deductible, so that the quoted exclusion from “annuity” would apply. However, the Income Tax Conventions Interpretation Act deems all payments out of an RRSP to be pension payments (where “pension” is not specifically defined in the Treaty), so that RRSP payments made to a Turkish resident are also subject to (Treaty-reduced) withholding as pension payment.

Neal Armstrong. Summaies of 30 March 2017 External T.I. 2015-0609951E5 Tr under Treaties - Art. 18 and Income Tax Conventions Interpretation Act, s. 5 - pension.