3 March 2008 External T.I. 2007-0243611E5 - Contributions to U.K.Pension Plan

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: A Canadian resident, originally from the U.K., wants to make additional contributions to their U.K. pension plan to increase the U.K. pension they will receive when they retire. 1) Can they deduct the contributions when computing their Canadian income taxes? 2) When they do retire, are they required to include the amounts received from their U.K. pension when computing their Canadian income taxes?

Position: 1) No. 2) Yes.

Reasons: There is no provision under the Act that provides for a deduction. Furthermore, there is no relief provided under the Canada-U.K. Convention.

								2007-024361
XXXXXXXXXX 							Bruce Hartt
(613) 948-5273
March 3, 2008

Dear XXXXXXXXXX :

Re: Request for technical interpretation - Contributions to your United Kingdom (U.K.) Pension

This is in response to your letter of June 26, 2007, in which you requested information regarding the deductibility, for Canadian income tax purposes, of contributions to your U.K. pension. You also wanted to know whether or not you would be required to include the amounts you receive from your U.K. pension in computing your income for Canadian income tax purposes.

In your letter, you indicated that you immigrated to Canada from England in XXXXXXXXXX . You would like to make additional contributions to your U.K. pension in order to increase your eventual pension entitlements under the plan. You believe that the additional contributions should be deductible because the pension benefits may be taxed in Canada if you are still a resident of Canada when the U.K. pension is paid.

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 an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (CRA). All publications referred to herein can be accessed on the CRA website at the following address:http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e-.html.

Comments

Contributions to a pension plan are generally deductible in computing income for Canadian tax purposes if the pension plan has been registered by the Canada Revenue Agency for the purposes of the Income Tax Act (the "Act").

Consequently, there is no deduction available under the Act for contributions made to a U.K. (foreign) pension plan or U.K. (foreign) government social security arrangement. Nevertheless, you will be required to include in computing your income for Canadian tax purposes all amounts you receive under such a U.K. plan. This is because, as a Canadian resident, you are taxable on your world income. The Canada-U.K. Income Tax Convention (1978) does not provide any relief in this regard.

Although you are required to include the U.K. pension amounts in your income, there is a provision in the Act that gives relief from double taxation on certain income, i.e., relief from having to pay tax to both Canada and another country on the same income. In general, foreign pension amounts received by a Canadian resident may be subject to tax withholdings in the country of origin and a taxpayer may be entitled to claim a foreign tax credit. Interpretation Bulletin IT-270R2 Foreign tax credit, provides CRA's general views on the computation of the foreign tax credit.

We trust that the above information will be of some assistance.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch