11 July 2002 Internal T.I. 2002-0148267 - ART 29 OF THE CANADA-GERMANY TREATY

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:

1. Must pension adjustments be reported in respect of contributions to a German pension plan that meets the requirements of paragraph 29(4) of the Canada-Germany Tax Treaty?

2. Would the deduction claimed for these contributions reduce the individual's RRSP contribution room?

Position:

1. Question of fact.

2. Question of fact.

Reasons:

1. Depends on whether the German pension plan is a foreign plan.

2. Depends on whether the German pension plan is a foreign plan. Foreign plan PA would reduce RRSP deduction room for the following year.

							July 11, 2002

INTERNATIONAL TAX DIRECTORATE			INCOME TAX RULINGS
Field & Advisory Services Unit II		  DIRECTORATE
P. Kohnen, CMA
Attention:  Phil Fortier			957-2093

								2002-014826

Article 29 of the Canada-Germany Tax Treaty

This is in response to your e-mail submission of June 18, 2002 to Jim Gauvreau, in which you requested answers to several questions relating to contributions made to a German pension plan. We note that the questions have been posed by XXXXXXXXXX, in advance of an upcoming XXXXXXXXXX meeting on July 18, 2002. Your submission has been forwarded to us for reply.

The new Canada-Federal Republic of Germany Tax Agreement (the "treaty") entered into force on March 28, 2002. Pursuant to paragraph 4 of Article 29 of the treaty, where an individual who is resident in, or is temporarily present in Canada, either contributes, or has contributions made on his behalf, in the year, for services rendered in that year, to a pension plan that is recognized for tax purposes in Germany, those contributions will be treated, for a period of up to 60 months, as contributions to a registered pension plan ("RPP") in Canada, if:

1. the individual was regularly contributing to the pension plan for a period up to the time he or she became a resident of or temporarily present in Canada, and

2. the competent authority in Canada agree that the pension plan generally corresponds to a Canadian RPP.

For purposes of paragraph 4 of Article 29 of the treaty, "pension plan" includes a pension plan created under the German social security system.

In the scenario raised in your submission, it is assumed that the competent authority in Canada have agreed that an unidentified German pension plan does generally correspond to a Canadian RPP. Based on this assumption, you posed the following questions:

1. would Pension Adjustments have to be calculated in respect of the above-referenced contributions, and

2. would a deduction in respect of these contributions reduce the individual's RRSP contribution room for the following tax year?

Subsection 8301(1) of the Income Tax Regulations (the "Regulations") generally defines a "pension adjustment" of an individual to include the individual's pension credits for the year with respect to the employer under a foreign plan, as determined under section 8308.1 of the Regulations.

A foreign plan, as defined in subsection 8308.1(1) of the Regulations, is a plan or arrangement that would be a retirement compensation arrangement ("RCA"), if the exclusion of paragraph (l) of the RCA definition in subsection 248(1) of the Income Tax Act (the "Act") were ignored. An RCA is defined as a plan or arrangement under which contributions are made by an employer or former employer of a taxpayer to a custodian in connection with benefits that are to be, or may be, paid out after or in contemplation of any substantial change in the services rendered by the taxpayer, the retirement of the taxpayer or the loss of an office or employment of the taxpayer. Paragraphs (a) to (n) of the definition specifically exclude certain plans and arrangements from being an RCA.

Paragraph (l) normally excludes from the definition of an RCA, a plan or arrangement (other than an athlete's plan) that is maintained primarily for the benefit of non-residents in respect of services rendered outside Canada. It is a question of fact as to whether a plan would, ignoring the exclusion of paragraph (l) of the RCA definition, be an RCA.

Paragraph (n) of the definition would exclude a plan or arrangement that was a prescribed plan or arrangement. For the purposes of paragraph (n) of the RCA definition, paragraph 6802(g) of the Regulations prescribes a plan or arrangement instituted by the social security legislation of a country other than Canada. It would be a question of fact as to whether a plan was instituted by the social security legislation of a country other than Canada.

We understand that, in general, from a tax policy perspective, it is not the intent of the rules relating to foreign plans to provide an exemption from the requirement to report a pension adjustment in respect of benefits accruing in employer sponsored pension plans. The exception provided in paragraph 6802(g) of the Regulations is meant to exclude benefits accruing in plans created by the governments of countries other than Canada, under their social security systems, from the requirement to calculate and report a pension adjustment.

Your submission also questioned whether the deduction in respect of contributions to the German pension plan, in the above scenario, would reduce the individual's RRSP contribution room for the following tax year. The "RRSP deduction limit" of a taxpayer for a taxation year is defined in subsection 146(1) of the Act to include, inter alia, the taxpayer's unused RRSP deduction room at the end of the preceding taxation year, plus the amount, if any, by which the lesser of the RRSP dollar limit for the year and 18% of the taxpayer's earned income for the preceding taxation year, exceeds the total of the taxpayer's pension adjustment for the preceding taxation year and any prescribed amount in respect of the taxpayer for the year. Accordingly, there will be a reduction in the taxpayer's RRSP deduction limit if the German pension plan is a foreign plan, and the contribution triggers a pension credit as required by subsection 8308.1(2) of the Regulations.

We trust that the above comments will be of assistance to you. Please do not hesitate to contact Phillip Kohnen at 957-2093 should you require further information.

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate

c.c. Karen Brodmann
Legislative Policy Division