9 January 2003 External T.I. 2003-0181155 - German Social Security

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: Whether social security received from Germany is taxable in Canada.

Position: Not until 2003 when subparagraph 3(c) of Article 18 of new German Treaty takes effect (see letter).

Reasons: Law

XXXXXXXXXX 2003-018115
J. Stalker
January 9, 2003

Dear XXXXXXXXXX:

Re: German Pension

This is in reply to your facsimile to us dated January 2, 2003, requesting our views on whether a pension you are receiving from Germany is taxable in Canada. You also enclosed the information slip received with the payment from Germany.

It is our understanding that the amounts you are receiving from Germany are paid under the social security legislation of Germany. These amounts were not taxable in Canada under the old Canada-Germany Tax Agreement. However, under the new German treaty, Canada can tax a portion of these amounts, as explained below, starting for the 2003 taxation year.

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 [Germany] paid to a resident of the other state [Canada] will now be taxable in the other state [Canada], to the extent they would have been taxable if the individual was resident in the first state [Germany].

However, although the new German treaty has effect retroactively to January 1, 2001, there is an interim relief period, pursuant to paragraph 3 of Article 31 of the new German treaty. The rule under the old German Treaty, which does not allow Canada to tax, applies up to and including 2002. New subparagraph 3(c) of Article 18 of the new German treaty applies to your pension in 2003, and Canada is able to tax a portion of the pension payments you receive starting this year. Canada can only tax the portion that Germany would have taxed if you instead 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 for Canadian recipients of German social security. The taxable part depends on the age the recipient is at the beginning of the payment of the benefits. For example, if the payments commence after the recipient 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.

Note that you will have to include the total pension receipts in your total income on your 2003 income tax return (just as in prior years) and then deduct the portion of the payment which is not taxable to calculate your taxable income (in the example above, the non-taxable portion would be 73 percent).

We trust our comments are helpful. If you have any questions please do not hesitate to call Jane Stalker XXXXXXXXXX or fax at (613) 957-2088.

Yours truly,

R.S. Biscaro, CA
Director
International and Trusts Division
Income Tax Rulings Directorate
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 January 1, 1955.

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