8 April 2002 External T.I. 2002-1125885 - Pensions Received from Germany

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.

April 8, 2002

XXXXXXXXXX Jane Stalker
Tel: (613) 946-8764
Fax: (613) 941-5932

ID# 2002-112588
HBW # 4125-4/49
HBW #4125-7/18

Dear XXXXXXXXXX:

Re: Pensions received from Germany

We are responding to your facsimile received March 25, 2002, in follow up to our telephone discussion, in respect of the tax treatment of certain pensions received by Canadian residents from Germany.

The new Canada-Federal Republic of Germany Tax Agreement (the "new German treaty") entered into force on March 28, 2002. One of the changes in the new German treaty is that, pursuant to new subparagraph 3(c) of Article 18, benefits under the social security legislation of one state paid to a resident of the other state will now be taxable in the other state, to the extent they would have been taxable if the individual was resident in the first state. The treatment of other pensions has not changed.

We understand that in Germany many pensions are paid under the social security legislation, and consequently such pensions paid to Canadian recipients will be subject to tax in Canada pursuant to the new Convention. However, although the new German treaty has effect retroactively to January 1, 2001 pursuant to Article 31, there is an interim relief period. Pursuant to paragraph 3 of Article 31, "Where any greater relief from tax would have been afforded by any provision of [the old German treaty], to a resident of either Contracting State, such provision shall have effect up to and including the taxation year in which this Agreement enters into force." As the new German treaty entered into force in 2002, new subparagraph 3(c) of Article 18 would not generally apply for 2001 and 2002 since the old German treaty, under which only Germany had the right to tax these payments, presumably gives greater relief.

When new subparagraph 3(c) of Article 18 does generally take effect in 2003, Canada will be able to tax the portion of the pension payments that Germany would have taxed if the individual were resident in Germany, which is an amount roughly based on the non-capital portion of the pension. The attached appendix shows the percentage amounts that will be taxable. The taxable part depends on the age the taxpayer is at the beginning of the payment of the benefits. For example, if the payments commence after the taxpayer turns 65 (but before he or she turns 66), the taxable portion is 27 percent. The percentage remains unchanged over the life of the recipient.

We trust our comments are helpful. If you have any questions, please do not hesitate to call me at (613) 946-8764.

Yours sincerely,

Jane Stalker
International Legislative Affairs
Legislative Policy Division
Policy and Legislation Branch

Attachment

APPENDIX

Age completed by the taxpayer upon the beginning of the annuity payment

taxable part of the annuity
(percentage)
Age completed by the taxpayer upon the beginning of the annuity payment

taxable part of the annuity
(percentage)
0 to 3
73
55
38
4 to 5
72
56
37
6 to 8
71
57
36
9 to 11
70
58
35
12 to 13
69
59
34
14 to 15
68
60
32
16 to 17
67
61
31
18 to 19
66
62
30
20 to 21
65
63
29
22 to 23
64
64
28
24 to 25
63
65
27
26 to 27
62
66
26
28
61
67
25
29 to 30
60
68
23
31
59
69
22
32 to 33
58
70
21
34
57
71
20
35
56
72
19
36 to 37
55
73
18
38
54
74
17
39
53
75
16
40
52
76
15
41 to 42
51
77
14
43
50
78
13
44
49
79
12
45
48
80 to 81
11
46
47
82
10
47
46
83
9
48
45
84 to 85
8
49
44
86 to 87
7
50
43
88
6
51
42
89 to 91
5
52
41
92 to 93
4
53
40
94 to 96
3
54
39
as of 97
2

Table does not apply to annuities beginning before 1 January 1955.

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