CRA confirms that a Canadian resident was not subject to Canadian tax on income accruing in a Swiss vested benefits policy

The Swiss pension system has three “pillars,” the second of which consists of pension funds (run by investment foundations) to which both employers and their employees are required to contribute. When a Swiss employee left for Canada, the Swiss legislation required that accumulated funds in the plan be transferred to a vested benefits policy (which would only pay benefits to the taxpayer once retirement age was reached), and upon the taxpayer’s return to Switzerland, the Swiss legislation required that the funds accumulated in the policy be returned to the second pillar pension plan of the taxpayer’s Swiss employer.

CRA considered that, based on its brief description, this policy likely qualified as a “superannuation or pension fund or plan.” Since such a plan is effectively only subject to tax on a cash basis under s. 56(1)(a)(i), the income accruing in the policy was not taxable during the taxpayer’s Canadian residency.

Neal Armstrong. Summary of 12 April 2018 External T.I. 2016-0640651E5 F under s. 248(1) - superannuation or pension fund or plan.