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 receipts from a Hong Kong pension plan are taxable in Canada under the Canada-Hong Kong Tax Convention?
Reasons: Art. 17 of the Tax Convention allows Hong Kong to tax amounts from pensions (including lump sums) arising in Hong Kong, but this does not eliminate Canada's right to tax the same amounts.
March 19, 2014
Re: Canadian Tax Treatment of Pension Amounts from Hong Kong
This letter is in reply to your correspondence of March 4, 2014 regarding the Canadian tax treatment of amounts from a Hong Kong pension plan. In particular, you accrued benefits under a pension plan for services rendered while you were employed by the Hong Kong government. You have since immigrated to Canada. This year you will meet the age requirement to start receiving periodic amounts in addition to a lump sum payment from this pension plan. You asked whether the periodic amounts and the lump sum payment will be taxable in Canada.
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".
The Act generally defines a "superannuation or pension plan" to be a plan 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 contributions are used to provide an annuity or other periodical payment on or after the employee's retirement in consideration for his or her employment services. Our comments are based on the assumption that the Hong Kong pension plan to which you have referred to fits within this definition.
According to Article 17 of the Canada-Hong Kong Tax Convention (the "Tax Convention"), pensions (including lump sums) arising from Hong Kong and paid to a resident in Canada may be taxable in Hong Kong. This, however, does not eliminate Canada's right to tax the same amounts.
Canadian residents are taxable, under subparagraph 56(1)(a)(i) of the Act, on pension benefits in the year of receipt. This applies to benefits from a foreign pension plan that are attributable to services rendered while the individual was not a resident of Canada. Therefore, the periodic amounts and the lump sum payment from the Hong Kong pension plan will be taxable in Canada.
The Act and the Tax Convention do provide measures to reduce or eliminate the double taxation of income. In general, you may be entitled to claim a foreign tax credit. Income Tax Folio S5-F2-C1, "Foreign Tax Credit", provides Canada Revenue Agency's ("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 that our comments will be of assistance to you.
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, 2014
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, 2014