20 May 2005 External T.I. 2005-0128051E5 - German Ghetto pension payments

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 payments under the German Ghetto Pension Law are included in income under the Income Tax Act?

Position: Request should be resubmitted as a request for an advance income tax ruling, but initial view is that the payments are exempt under 81(1)(g).

Reasons: Appears to meet the requirements of paragraph 81(1)(g).

Ms. Marla Israel

Director, International Policy and Agreements
Social Development Canada 2005-012805
16th Floor, Tower B, Place Vanier S.E. Thomson
355 North River Road
Ottawa ON K1A 0L4

May 20, 2005

Dear Ms. Israel:

Re: German Ghetto Pension

This is in reply to your fax of April 19, 2005 in which you ask for our views on the taxation of a German pension payment received by a Canadian resident under the Gesetz zur Zahlbarmachung von Renten aus Beschaftigungen in einem Ghetto ("ZRBG"), or Law Regarding Pensions Payable from Employment in a Ghetto. Claimants under the ZRBG must have the status under German law as a person persecuted by the Nazis.

You indicate that the ZRBG was passed by the German parliament in June 2002, and deems periods of work for compensation in a ghetto during World War II as periods of contribution to the German pension system. The passage of the ZRBG was a result of a judgement by the German Federal Social Court, proclaiming that these periods had to be taken into account as periods of contribution completed under the German Foreign Pension Law and/or the legislation of the former German Reich with an effective date of July 1, 1997.

Your ongoing discussions with your German colleagues have revealed that payments made under the ZRBG are paid by Germany to non-residents of Germany without "legislative basis" and are referred to as "discretionary benefits" due to restrictions that would otherwise make them not payable outside Germany. As such, these payments are not regarded as "social security benefits" per se by Germany and are only payable into a country, such as Canada, provided they are to the recipient's advantage and do not reduce the amount of the benefits awarded by that country. In other words, if Canadian benefits, such as the Guaranteed Income Supplement, are decreased as a result of Germany making payments under the ZRBG, Germany will not make the payments. You have asked us to confirm whether or not payments under the ZRBG received by a resident of Canada are to be included in computing his or her income under the Income Tax Act (the "Act").

OUR COMMENTS

Although you have asked for our technical interpretation on a hypothetical situation, it appears that your request may involve a transaction or series of transactions contemplated by specific taxpayers. As such, we are precluded from commenting directly on the situation, except in the context of an advance income tax ruling. We refer you to Information Circular 70-6R5 "Advance Income Tax Ruling", which is available at our website at www.ccra-adrc.gc.ca. Although we cannot comment directly on the situation, it is our usual practice to provide general comments on the relevant provisions of the Act that may apply. Please note that these comments are not binding on the Canada Revenue Agency.

Our initial view is that payments under the ZRBG received by a resident of Canada would not be included in computing his or her income for purposes of the Act by virtue of paragraph 81(1)(g) of the Act. Paragraph 81(1)(g) of the Act reads as follows:

81(1) There shall not be included in computing the income of a taxpayer for a taxation year

(g) a payment made by the Federal Republic of Germany or by a public body performing a function of government within that country as compensation to a victim of National Socialist persecution, where no tax is payable in respect of that payment under a law of the Federal Republic of Germany that imposes an income tax;

We understand that payments under the ZRBG to residents of Canada are not taxed in Germany. Therefore, Canadian benefits that are solely dependent on income as computed under the Act will not be affected.

We trust we have been of some assistance.

Yours truly,

Wayne Adams
Director General
Income Tax Rulings Directorate