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 a Canadian resident individual is required to file foreign reporting forms in respect of her interest in an Australian Super Fund trust?
Position: It depends on the particular Super Fund, but in the Super Fund described in the document, the taxpayer is required to file a T1135.
Reasons: The Super Fund trust described is specified foreign property, and none of the exceptions apply.
XXXXXXXXXX 2015-059546
S.E. Thomson
(613)670-9002
April 12, 2016
Dear XXXXXXXXXX:
Re: Australian Super Fund and T1135
This is in reply to your email of January 22, 2015 in which you ask whether a Canadian resident taxpayer is required to file a T1135 Foreign Income Verification Statement in respect of her interest in an Australian Super Fund.
Facts and Assumptions
You have provided us with the following facts. Your client is a member of a regulated Australian Superannuation Fund, which is classified as a public offer fund and retail fund (see below for a description of these funds). It operates as a trust. It is required to be and is a complying fund (i.e. registered and approved by the Australian Government), which means that it receives concessional tax treatment because it is regulated under the relevant superannuation legislation. It is funded by compulsory and voluntary contributions from employers and individuals over their working lives, and said amounts are preserved until retirement age. In sum, it is a government regulated investment strategy designed to provide financially for Australians on their retirement.
The concessional tax treatment means that all investment earnings within the Super Fund are taxed at 15%, except for capital gains, which are given a 33% discount.
Your client has made no contributions to the Super Fund since moving to Canada. The Super Fund was valued at over $100,000 when your client became a Canadian resident. No funds can be withdrawn from the Super Fund until the taxpayer reaches the age of 60.
According to the Australian Government website:
A public offer fund is a superannuation fund that can be joined by members of the public. It is a regulated fund consisting of pooled superannuation sold commercially, for example, through life companies, bank subsidiaries or financial planners. This category includes master trusts (where a large number of unconnected individuals or companies operate their superannuation arrangements under a single common trust deed) and personal superannuation products. (footnote 1)
Retail funds are run by financial institutions and are open to everyone. (footnote 2)
We assume that the Super Fund you describe is a pension. It is a question of fact as to whether a particular pension scheme is a superannuation or pension fund or plan under the Act. However, in general, a plan will be considered to be a superannuation or pension plan or fund 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 the 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, and in some cases, where amounts have been contributed under the plan by a government. We assume that all services provided by the employee to the employer were rendered outside of Canada.
We also assume that the Super Fund is an employee benefit plan. An employee benefit plan, in general terms, requires contributions to be made by an employer for the benefit of the employer’s employees or former employees.
In addition, we assume that the Super Fund trust is a non-resident trust for Canadian tax purposes, and is not deemed to be resident in Canada by subsection 94(3) of the Act.
Your Questions
1. In regards to Form T1135, is this fund considered “specified foreign property” and should be reported, or is it an “exempt trust” as defined in subsection 233.2(1) of the Income Tax Act?
2. If the Super Fund does not need to be reported on Form T1135, does that change when the taxpayer starts to draw benefits from the Super Fund?
Our Comments
This technical interpretation provides general comments about the provision of the Canadian Income Tax Act (the “Act”). 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.
Our research consisted of a general review of some commentary on Australian Super Funds, and did not constitute a complete in-depth review of all of the features of the various types of Australian Super Funds. Therefore, the comments below are only general in nature, and should not be construed as definitive in all cases. Each situation will have to be examined based on the relevant facts.
All amounts are stated in Canadian dollars unless specified otherwise.
If at any time in the year the total cost amount to the reporting taxpayer of all specified foreign property was more than $100,000, the taxpayer must file form T1135, Foreign Income Verification Statement. The T1135 form and instructions are available at the following link:
http://www.cra-arc.gc.ca/E/pbg/tf/t1135/
Specified foreign property is defined in subsection 233.3(1) of the Act, and includes an interest in a non-resident trust. Paragraphs (j) to (q) of the definition of specified foreign property list the exclusions from specified foreign property. The relevant exclusions are:
- Paragraph (l) – if the non-resident trust is a foreign affiliate of the taxpayer for purposes of section 233.4 of the Act. Section 94.2 of the Act may deem a non-resident trust to be a foreign affiliate of the taxpayer for purposes of section 233.4. We assume that section 94.2 does not apply, and that the trust is not a foreign affiliate of the taxpayer. Therefore, this exception does not apply.
- Paragraph (m) – if the interest in the non-resident trust was not acquired for consideration by the taxpayer, or certain other persons. The employee’s interest in the Super Fund does not meet this exception because the employee’s contributions to the Super Fund constitute “consideration” for the acquisition of the interest in the trust.
- Paragraph (n) – if the trust is described in paragraph (a) or (b) of the definition of “exempt trust” in subsection 233.2(1) of the Act.
Paragraph (a) of the definition of “exempt trust” refers to foreign retirement arrangements. However, a “foreign retirement arrangement” includes only certain U.S. individual retirement accounts (IRAs), and does not include Super Funds.
Paragraph (b) of the definition of “exempt trust” refers to, inter alia, trusts that are exempt from the payment of income tax in the country in which they are resident.
Since Super Funds are subject to income tax in Australia, they do not meet this exception.
Since the Super Fund described above is specified foreign property, the taxpayer must report the “cost amount” of the interest in the Super Fund on the T1135 if the total of all cost amounts of all specified foreign property exceeds $100,000. A T1135 is required whether or not the taxpayer is drawing benefits from the Super Fund.
Provided the Super Fund described above is a pension and an employee benefit plan, the cost amount of the interest in the Super Fund will be the amount the individual has a right to receive in respect of the Super Fund. This includes all amounts to which the individual has a legal right to receive, even if the amounts are to be received in the future.
In those unusual circumstances where it is not possible to determine the cost amount of a specified foreign property, taxpayers should use their best efforts to reasonably estimate the cost amount of the property. The Canada Revenue Agency will not penalize taxpayers who have made reasonable estimates based on the best available information. The onus is on the taxpayer to demonstrate the reasonableness of any such estimates, if requested by the Canada Revenue Agency.
Where a taxpayer has not previously filed a T1135 that was required to be filed, we recommend that the taxpayer make a voluntary disclosure to the CRA. Instructions for making a voluntary disclosure are available at http://www.cra-arc.gc.ca/voluntarydisclosures/.
We trust that we have been of some assistance.
Yours truly,
Julia Belova, Manager
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 https://abr.business.gov.au/EntityTypeDescription.aspx?Id=108
2 https://www.ato.gov.au/individuals/super/getting-started/employees/
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