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: (1) The tax implications to a Canadian resident regarding receipt of pension payments from an unregistered foreign pension plan. (2) The tax implications if a lump-sum payment made out of an Australian pension fund is to be transferred to an RRSP on a tax-deferred basis.
Position: (1) The determination of whether a foreign pension plan is a superannuation or pension plan for Canadian tax purposes is a question of fact. In general, a Canadian resident must include the gross payments in income under subparagraph 56(1)(a)(i) of the Act. (2) A lump-sum payment in respect of non-resident services may be transferred to an RRSP on a tax deferred basis if certain criteria are met.
Reasons: 56(1)(a)(i); 60(j)(i)
XXXXXXXXXX
2011-040912
K. Podor
March 5, 2013
Dear XXXXXXXXXX:
Re: Australian Pension Fund
This is in response to your request for the Canadian tax implications regarding withdrawals from an Australian Pension Fund. You have also asked whether a Canadian resident, who contributed to an Australian Pension fund, in respect of non-resident services, would be entitled to claim a deduction under the Income Tax Act (the "Act") for a lump sum amount transferred from this fund to a registered retirement savings plan ("RRSP").
In connection with your client's employment in Australia, your client accrued benefits in the Austrust Private Superannuation Fund ("APSF"). Your client and his or her Australian employer both made contributions to the APSF. When your client moved to Canada in XXXXXXXXXX, he or she left his or her deferred pension in the APSF intending to receive a pension beginning at 55 years of age. Your client retains the option to elect to receive a lump sum payment in lieu of his or her future entitlements under the plan.
Written confirmation of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet (http://www.cra-arc.gc.ca/formspubs/menue.html). Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year.
Our Comments
The determination of whether a foreign plan constitutes a superannuation or pension plan for the purposes of the Act is a question of fact. Generally, a plan will be considered to be a superannuation or pension plan where contributions are made to the plan by or on behalf of the 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 periodic payment on or after the employee's retirement. In your correspondence, you noted that both your client and his or her former employer contributed to the APSF. Also, the purpose of the APSF was to provide retiring allowances and other superannuation benefits for participants retiring from gainful employment or for their dependants in the event of their death. Based on this information, it appears that payments from the APSF will be made in respect of a superannuation or pension plan.
Where a Canadian resident receives amounts out of a foreign plan that qualifies as a superannuation or pension plan for purposes of the Act, the full amount received before any withholding taxes, is included in income under subparagraph 56(1)(a)(i) of the Act unless a specific provision of the Act or the Canada-Australia Income Tax Convention (the "treaty") applies to exclude the amount.
You noted that, at the time your client made contributions to the APSF, a flat rate of tax applied to the contributions. As a result of a change in Australian tax policy, no amount of tax is currently paid in respect of payments from the APSF. However, there is no provision under the Act or the treaty which would exempt from Canadian income tax that portion of the payment that would have been exempt from Australian income tax.
We understand that your client is contemplating a lump sum transfer from the APSF to a RRSP. The Canada Revenue Agency (CRA) has published its views regarding the transfer of amounts from non-registered pension plans to Canadian registered plans in Income Tax Interpretation Bulletin No.: (IT)-528, "Transfers of Funds Between Registered Plans". Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) of the Act which permits a deduction for a pension benefit received by an individual from a non-registered pension plan, such as a foreign pension plan, that is transferred to a registered pension plan or a RRSP. A deduction under subparagraph 60(j)(i) of the Act is permitted if the following conditions are satisfied:
- The foreign plan must constitute a superannuation or pension plan for the purposes of the Act.
- The pension benefit must not be part of a series of periodic payments. Only lump sum payments are eligible for the deduction.
- The pension benefit must be attributable to services rendered by the individual (or the individual's spouse or common-law partner or former spouse or common-law partner) to an employer in a period throughout which the individual was not resident in Canada
- The pension benefit must be included in the individual's income for the year and not exempt from tax in Canada because of an income tax convention.
The individual must make the RRSP contribution in the year the pension benefit is received or within 60 days after the end of that year. The amount of the deduction is limited to the lesser of the amount designated and the amount of the benefit included in income. The deduction is over and above an individual's regular RRSP deduction limit.
We trust these comments are helpful.
Lita Krantz, CPA, CA
Assistant Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2013
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2013