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 the taxpayer can deduct a "top-up" contribution to a U.K. pension plan in determining taxable income for Canadian tax purposes?
Position: No. In general, contributions to a pension plan are only deductible in computing a Canadian resident's taxable income where the pension plan is registered with the CRA for the purposes of subsection 147.2(4) of the Act. A U.K. pension does not meet this requirement and therefore the contribution would not be deductible in computing taxable income for Canadian tax purposes.
Reasons: The requirements under subsection 147.2(4) of the Act are not met.
November 26, 2013
Re: Voluntary contribution to a United Kingdom pension
This is in response to your correspondence dated July 16, 2013, wherein you enquired about the deductibility, for Canadian tax purposes, of a voluntary contribution to your United Kingdom ("U.K.") pension plan in order to increase your pension benefit entitlements under the plan.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in information circular (IC)70-6R5, "Advance Income Tax Rulings".
Your correspondence indicates that you have the opportunity to increase your pension entitlements by making a voluntary "top up" contribution to your U.K. pension plan. You wish to confirm whether this contribution will be deductible because the pension benefits that you currently receive from the U.K. are included in computing your Canadian taxable income. You also indicate that you immigrated to Canada and are now a Canadian resident.
Under subsection 147.2(4) of the Act, a deduction is permitted for employee contributions to a "registered pension plan". However, a "registered pension plan" for the purposes of the Act is defined in subsection 248(1) of the Act to mean a pension plan that was registered by the Minister of National Revenue for the purposes of the Act. As a result, a U.K. pension plan does not satisfy the definition of a registered pension plan and there is no deduction available under the Act for the voluntary "top up" contributions made to a U.K. pension plan or U.K. government social security arrangement.
Canadian residents are taxable on their worldwide income, including amounts received from U.K. pension plans. Although amounts received from U.K. pension plans must be included in income, the Act may provide relief from having to pay tax to both Canada and another country on this same income. In general, foreign pension amounts received by a Canadian resident may be subject to tax withholdings in the country of origin for which the taxpayer may be entitled to claim a foreign tax credit. Income Tax Folio S5-F2-C1, "Foreign Tax Credit", provides Canada Revenue Agency's (the "CRA") general views on the computation of the foreign tax credit. You may wish to refer to this publication which may be found on the CRA website at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s5/f2/s5-f2-c1-eng.html.
We trust our comments will be of assistance.
Lita Krantz, CPA, CA
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