7 March 2005 External T.I. 2005-0110431E5 - UK pension transfer to Canada

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: Can a U.K. pension be transferred to an RPP or RRSP in Canada?

Position: If all conditions in 60(j) are satisfied, yes.

Reasons: Clearly provided for under the Act.

XXXXXXXXXX 							2005-011043
								Michelle Desrosiers
								  Notary, M.Fisc.
March 7, 2005

Dear XXXXXXXXXX:

Re: Transfer of Entitlement under U.K. Pension Scheme to an RRSP

This is in reply to your facsimile of January 6, 2005, wherein you requested information regarding the possible transfer of funds from a U.K. pension plan to Canada on a rollover basis.

You worked in England and participated in a non-contributory pension scheme. You are currently employed in Canada and, as a member of a registered pension plan sponsored by your employer, you are eligible to buy back some past service entitlements. Your registered pension plan cannot accept any transfers from outside Canada to buy back the past service. You would like to get your U.K. pension scheme entitlements to Canada on a tax-deferred basis.

Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling. For more information concerning advance income tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Bulletins and Circulars referred to herein are available from your local tax services office or on the internet at:http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.

The determination of whether a foreign pension scheme would constitute superannuation or pension plan for purposes of the Income Tax Act (the "Act") is a question of fact. Generally, a plan will be considered a superannuation or pension fund where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodical payment on or after the employee's retirement.

The Agency's general views regarding the transfer of amounts from non-registered pension plans to Canadian registered plans are found in Interpretation Bulletin IT-528 "Transfers of Funds Between Registered Plans". Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) of the Income Tax Act (the "Act") which allows a deduction for a superannuation or pension benefit (that is not part of a series of periodic payments) received from a non-registered pension plan (a foreign pension plan) for services provided by an individual in a period throughout which that individual was not resident in Canada that is transferred to a registered pension plan (RPP) or a registered retirement savings plan (RRSP). Since your RPP is unable to accept contributions from outside Canada, we will restrict our general comments to transfers to RRSPs.

Certain conditions have to be satisfied before an amount will be eligible for a deduction under subparagraph 60(j)(i) of the Act. The first condition is that the superannuation or pension benefit must be included in the individual's income for the year under subparagraph 56(1)(a)(i) of the Act. Under the Act and the Canada U.K. Income Tax Convention (the "Treaty"), amounts received out of a U.K. pension plan by a Canadian resident are included in the recipient's income. The second condition is that the contribution to the RRSP has to be made in the year the amount is included in the individual's income or within 60 days after the end of the particular year.

Before considering the transfer of any amount held in a foreign pension scheme, the individual should understand how the transferred amounts would be taxed in that foreign country. If the amounts are subjected to significant withholding taxes, it may not be economically beneficial to transfer such amounts. We note that under Article XVII of the Treaty , effective in 2005, either the U.K. or Canada or both have the right to tax lump sum pension payments paid to a Canadian resident while only Canada is permitted to tax periodic pension payments made to Canadian residents. It is our understanding that a lump-sum payment under a U.K. superannuation, pension or retirement plan is not eligible for any exemption from or reduction in U.K. withholding taxes. Consequently, you may want to consult with your tax advisors.

For Canadian income tax purposes, where a plan administrator appropriately withholds U.K. taxes, an individual may be entitled to claim a foreign tax credit with respect to the taxes withheld. In basic terms, the foreign tax credit is computed as the lesser of the foreign taxes paid and an amount that is approximately equal to the taxes the resident of Canada would otherwise pay in respect of the payment. Interpretation Bulletin IT-270R2 "Foreign Tax Credit" provides the Agency's general views on the computation of the foreign tax credit. It should be noted that, if an individual has no tax payable in Canada, the foreign tax credit may be lost.

We note that amounts held in RRSPs could be transferred to RPPs. In this regard, we would refer you to paragraph 5 of IT-528. Once an amount is held in an RRSP it could be transferred to an RPP to buy back past-service.

We trust that the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate