27 January 2005 Internal T.I. 2004-0080851I7 - Retiring Allowance-Article XI CanadaIreland 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.

Principal Issues: Whether periodic payments made to a resident of Ireland (former resident of Canada) in respect of a retiring allowance received in recognition of long service are exempt from taxation in Canada by virtue of Article XI of the 1967 Canada-Ireland treaty

Position: Yes

Reasons: Such payments satisfy the definition of "pension" under the Canada-Ireland treaty and the ITCIA doesn't override such definition.

Monique Poirier
Large Business Audit
Section 441-2-1							Sophie Chatel
Montréal TSO								(613) 957-2118
305 René-Lévesque Ouest
Montréal QC  H2Z 1A6						2004-008085
Tel:  514-229-0423

January 27, 2005

Dear Ms. Poirier:

Re: Retiring Allowance and the 1967 Canada-Ireland Treaty

This letter is in response to your memo dated June 22, 2004 wherein you requested our views on whether or not periodic payments made to a resident of Ireland (former resident of Canada) in respect of a retiring allowance received in recognition of long service were exempt from taxation in Canada by virtue of Article XI of the 1967 Canada-Ireland treaty (the "Canada-Ireland Treaty").

Our Comments

Under paragraph 212(1)(j.1) of the Income Tax Act (Canada) (the "Act"), payments made to a non-resident person in respect of a retirement allowance are subject to a 25% withholding tax. Such withholding tax could be reduced or eliminated by a tax treaty.

Article XI of the Canada-Ireland Treaty exempts "pension" as defined therein from tax in the country of source. Therefore, if we were to conclude that in your situation the retiring allowance payments were a pension under the Canada-Ireland Treaty, such payments would be exempt from tax in Canada.

Article XI of the Canada-Ireland Treaty defines "pension" as follows:

3. The term "pension" means periodic payments made in consideration of past services.

From the plain reading of this definition, periodic payments made to an Ireland resident in respect of a retiring allowance do qualify as payments of a "pension" under the Canada-Ireland Treaty since the payments are periodic and made in consideration of past services.

The Income Tax Conventions Interpretation Act (the "ITCIA") is important in the interpretation of treaties since it supersedes our treaties, even if the ITCIA has been used to clarify rather than to override treaties.

Paragraph 5 of the ITCIA states:

5. Notwithstanding the provisions of a convention or the Act giving the convention the force of
law in Canada, in this section and in the convention, [...]

"pension" means, in respect of payments that arise in Canada,

(a) if the convention does not include a definition "pension", a payment under any plan,
arrangement or contract that is

[...]

(ix) a superannuation, pension or retirement plan not otherwise referred to in
this paragraph, and

(b) if the convention includes a definition "pension", a payment that is a pension for the
purposes of the convention or a payment (other than a payment of social security
benefits) that would be a periodic pension payment if the convention did not include
a definition "pension";

[Emphasis Added]

The definition of "pension" under the paragraph 5(b) of the ITCIA expands rather than restricts the definition of "pension" under the Canada-Ireland treaty to include periodic pension payments.

The ITCIA further defines de term "periodic pension payments" as follows:

"periodic pension payment" means, in respect of payments that arise in Canada, a pension payment other than [...] a lump sum [...]

In our file 9414556, we have stated:

It should also be noted that, in some conventions, there is merely a reference to "periodic payments" in the pension article in reference to pensions. For such conventions, we interpreted "periodic payments" to mean PPPs [Periodic Pension Payments].

Based on such interpretation, you concluded that since the Canada-Ireland Treaty defines a "pension" by reference to "periodic payment", payments made to an Ireland resident must be "periodic pension payments" as defined under section 5 of the ITCIA.

We believe that the ITCIA definition of "periodic pension payment" doesn't override the definition of "pension" in the Canada-Ireland Treaty. Article XI(3) of the treaty defines the term "pension" as "periodic payments made in consideration of past services" as opposed to referring only to "periodic payments". We could not simply ignore the words "made in consideration of past services".

For all of the above reasons, we are of the view that periodic payments made to a resident of Ireland in respect of a retiring allowance in recognition of long service are "pension" under the 1967 Canada-Ireland Treaty and, according to Article XI, such payments are exempt from tax in Canada.

We hope that these comments are of assistance.

Yours truly,

Olli Laurikainen
Section Manager
for Division Director
International Section
Income Tax Rulings Directorate
Policy and Planning Branch