25 March 2026 External T.I. 2023-0967531E5 - FTC on Social Security Contributions

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: Are mandatory Social Security Contributions made to the government of Greece in a given year eligible for a foreign tax credit, pursuant to subsection 126(1) or subsection 126(2) of the Act ?

Position: Yes, provided the conditions in ITTN No. 31R2 are satisfied.

Reasons: Prior administrative position.

XXXXXXXXXX 2023-096753
Jasneet Khattra

March 25, 2026

Dear XXXXXXXXXX:

Re: Greece Social Security Contributions

This is in reply to your letter dated March 15, 2023, wherein you asked for our comments on whether the compulsory Greek social security contributions (the “Social Security Contributions”) paid to the government of Greece by a Canadian resident individual (the “Taxpayer”) are eligible for a foreign tax credit pursuant to section 126 of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1., as amended (the “Act”)(footnote 1).

Our response to your letter dated November 4, 2021, wherein you asked for our comments on whether the special solidarity contribution paid to the government of Greece by a Canadian resident individual is eligible for a foreign tax credit pursuant to section 126 is provided in a separate letter (document 2021-091761).

You have asked us to assume the following hypothetical facts:

1. The Taxpayer is a Canadian resident individual.

2. The Taxpayer serves as a member on the board of directors of a company (the “Company”) headquartered in Greece and a resident of Greece for purposes of the Act and the Convention Between Canada and the Hellenic Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and on Capital (the “Treaty”)..

3. The Company pays a fee (the “Director’s Fee”) to the Taxpayer as compensation for serving as a member on the board of directors of the Company.

4. The Director’s Fees are subject to various mandatory withholdings in Greece, including income tax and the Social Security Contributions.

5. All of the board of directors’ meetings in a year occur either physically in Greece or virtually, while the Taxpayer is physically present in Canada.

6. In each year that the Taxpayer has been paying the Social Security Contributions, the Taxpayer has also been employed by a Canadian company and has made maximum contributions to the Canada Pension Plan (CPP); therefore, the Taxpayer is expected to be entitled to the maximum CPP benefits upon retirement.

BACKGROUND

The comments in this letter are conditional on the accuracy of this description of the terms of the Social Security Contributions system:

1. The Social Security Contributions are compulsory payments imposed by and enforceable under the Greek legislation, are administered by the Hellenic Tax Authority of Greece, and may entitle a person to receive social benefits (specifically, pension) from the Greek Unified Social Security Fund ("EFKA" in Greek), provided certain conditions are met.

2. Under the Greek tax law, fees paid to members of a board of directors are viewed as salary (employment income) and are taxed in accordance with the progressive scale applicable to salaried employees. All recipients of salary are required to contribute to EFKA. For salaried persons, contributions are calculated as a percentage of the gross salary.(footnote 2) There is a maximum monthly gross salary on which contributions are due. These contributions are withheld monthly from gross salary, and are deductible expenses under the Greek Income Tax Code in determining taxable income of the recipient.

3. The Social Security Contributions give entitlement to a contributory pension (to be distinguished from the state-funded guaranteed national pension). The contributory pension is determined based on pensionable income (income subject to social security contributions), the insurable period, and the replacement rates prescribed under the Greek law. There is a direct nexus between the amount of contributions made and the amount of the contributory pension to which the contributor is entitled. The insurable period includes both actual insurance (periods of employment or self-employment subject to contributions) and fictitious insurance (periods recognized as insured, either without employment or upon payment of voluntary contributions).

4. The conditions for a contributory pension include meeting both an age threshold and a minimum contribution period threshold. Effective January 1, 2022, the general entitlement conditions for a full contributory pension are as follows:

a. 12,000 days of insurance (equivalent to 40 years) and attainment of 62 years of age; or

b. 4,500 days of insurance (equivalent to 15 years) and attainment of 67 years of age.

5. A reduced contributory pension may be available to individuals with at least 4,500 days of insurance (15 years) who have attained 62 years of age. Transitional provisions apply until January 1, 2022, allowing certain individuals to qualify for earlier retirement based on fewer years of insured service.

OUR COMMENTS

This technical interpretation provides general comments about the provisions of 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The issue is whether the Social Security Contributions paid on the Director’s Fee are eligible for a foreign tax credit under subsection 126(1) or 126(2) of the Act.

Pursuant to subsections 126(1) and 126(2), a foreign tax credit in respect of income or profits tax paid to the government of a country other than Canada by a taxpayer resident in Canada may be deducted from Part I tax otherwise payable by the taxpayer. The Director’s Fee is income from an office or employment. Therefore, the relevant provision, in this particular case, is subsection 126(1). Generally, a deduction would be available under subsection 126(1) for the Social Security Contributions paid by the Taxpayer if, among other requirements, (i) the Social Security Contributions are a “non-business income tax” as defined in subsection 126(7), paid by the Taxpayer to the government of Greece, and (ii) there is “qualifying income” from a source in Greece, as defined in subsection 126(7) and computed in accordance with subsection 126(9).

The Social Security Contributions Are Not Non-Business-Income Tax

In general, for a government levy to be a “non-business income tax” as defined in subsection 126(7), among other requirements, the levy must be a “tax” that is an “income or profits tax”.

The Supreme Court of Canada set out essential characteristics of a “tax”. In Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.R.C. 357, it defined tax as “a levy, enforceable by law imposed under the authority of a legislature, imposed by a public body and levied for a public purpose.” Years later, the Supreme Court confirmed the series of tests to determine the main characteristics of a tax in Re Eurig Estate, [1998] 2 S.C.R. 565 . Since Re Eurig Estate, the Supreme Court has revisited the concept of tax in the cases of Westbank First Nation v. BC Hydro and Power Authority, [1999] 3 S.C.R. 134, and 620 Connaught Ltd v. Canada (AG), 2008 SCC 7, and clarified that where a levy has characteristics of both a tax and a regulatory charge, in order to be a tax there should be no “nexus” between the revenues raised and the cost of any service provided or the regulatory scheme it is intended to support.

Those principles are restated in paragraph 1.5 of the Income Tax Folio S5-F2-C1, Foreign Tax Credit (the “Folio”)):

“In general terms, a tax is a levy of general application for public purposes enforceable by a governmental authority. A levy imposed by a governmental authority will not be considered a tax if it is a charge meant to recoup the costs for services directly rendered or to finance a specific regulatory scheme.”

As stated in Income Tax Technical News No. 30, social security contributions are generally not regarded as non-business income taxes for purposes of section 126 because they generally do not qualify as “taxes”:

“As a rule, social security taxes will no longer be accepted as non-business income taxes for the purposes of the foreign tax credit. The technical interpretations regarding the tax treatment of social security contributions in France and Germany as foreign tax credits are thus obsolete and unreliable.

[…]

Since a payer of social security derives specific economic benefits from his contributions, the amount cannot be said to be levied for a public purpose, and therefore it cannot be an income or profits tax. For this reason, social security contributions generally do not qualify as income or profits taxes because they are not really taxes at all, within the judicially accepted meaning of that term.”(footnote 3)

The Commentary on the OECD Model Tax Convention on Income and on Capital provides guidance on when a levy qualifies as a “tax” for purposes of Article 2 of the OECD Model Tax Convention. It specifically notes that social security charges are not “taxes on the total amount of wages” where there is a direct connection between the levy and the individual benefits to be received.(footnote 4) Working Party No. 30 of the OECD Fiscal Committee concluded in its report prepared in 1967 that social security payments ordinarily give rise to specific rights against the insurance fund, and thus, in principle, should not be considered taxes in the sense of Article 2. (footnote 5)

The Social Security Contributions are compulsory, imposed by the enactment of legislation by the Greek parliament, enforceable by such legislation, and levied by a public body (Hellenic Tax Authority of Greece). However, they do not satisfy the “public purpose” test. They fund a contributory benefit scheme under which qualifying contributors acquire a specific right or benefit, and therefore are not levied for a public purpose of generating revenue for the state. (footnote 6) Accordingly, they are not a “tax” under Canadian law.

That conclusion is consistent with the way Greece sees Social Security Contributions. The official website of the Hellenic Republic Ministry of Labour and Social Security includes an explanatory statement titled “Social security contributions are not taxes.” The Hellenic Republic Ministry of Labour and Social Security does not view social security contributions as a tax on the basis that taxes are used for the functioning of the State and the implementation of social policies, while social security contributions is money that belongs to insured persons. (footnote 7)

Even if the Greek Social Security Contributions were considered a “tax”, they would not qualify as an income or profits tax for the purposes of the Act, and more specifically, for the purpose of the definition of non-business income tax in subsection 126(7). Paragraph 1.7 of the Folio provides:

“In determining whether a particular foreign tax is an “income or profits tax”, it is not the name given to the tax that is the deciding factor. Rather, the basic scheme of application of the foreign tax is compared to the scheme of application of income and profits tax imposed under the Act. Generally, if the basis of taxation is substantially similar, the foreign tax is accepted as an income or profits tax. To be substantially similar, the foreign tax must be levied on net income or profits (but not necessarily as would be computed for Canadian tax purposes) unless it is a tax similar to that imposed under Part XIII of the Act.”

The Social Security Contributions are assessed on gross employment income. The contributions are capped and not necessarily related to the contributor’s total economic gain. They also fall outside the Folio’s limited exception in paragraph 1.12.1 for levies on gross income, as they are not “tightly linked and subordinate” to any income or profits tax.

Income Tax Technical News No. 31R2, dated May 16, 2006 (“ITTN No. 31R2”)

As stated in ITTN No. 31R2, the CRA will accept that a contribution by a Canadian-resident employee to a foreign public pension plan be considered as a non-business income tax for the purpose of section 126, if both of the following conditions are met:

• the employee is compelled to make the contribution pursuant to the legislation of the foreign country; and
• it is reasonable to conclude that the employee will not be eligible for any financial benefit from his/her contribution considering that the employment in the foreign country was temporary and for a short period of time.

The first condition is met. The Social Security Contributions are mandatory under Greek law, with no voluntary component.

The use of the past-tense verb “was” indicates that the determination whether a financial benefit is ultimately payable to the employee is to be made after the employment has ended. Eligibility is retrospective, based on circumstances such as the duration of employment, contributions made, and the specific eligibility criteria of the foreign social insurance system.

Applied to the circumstances of this letter, if, after the Taxpayer no longer serves on the board of directors of the Company, it is reasonable to conclude that the Taxpayer will not meet the eligibility criteria to receive a contributory pension in Greece, the second condition will be satisfied.

If both conditions are met after employment ends, and provided all other conditions in subsection 126(1) are satisfied, the Taxpayer may request an adjustment to their Canadian income tax return to claim a foreign tax credit. On the basis that the request would result in a refund to the Taxpayer, the request must be made within ten years of the end of the relevant taxation year, as permitted under subsection 152(4.2), which allows the Minister of National Revenue to reassess a return in order to issue a refund or reduce the amount of tax payable under Part I.

Even if the Social Security Contributions qualify as a non-business income tax under ITTN No. 31R2, the Taxpayer must still meet the other requirements of subsection 126(1), including having Greek-source income. Under the Canadian domestic law, the location of the source of an individual’s office or employment income is considered to be the physical place where he or she normally performs the related duties. Director’s fees are generally considered to be earned where the board of directors’ meetings are held. (footnote 8)

If the article of an income tax treaty between Canada and a foreign country that eliminates double tax deems income, that would otherwise be income from a source in Canada, to be income from a source in that foreign country, that income is included in income from sources in that foreign country for purposes of calculating foreign tax credit under subsection 126(1) for foreign income taxes paid, that are covered under the treaty. (footnote 9)

Article 23(2)(a) of the Treaty (footnote 10) requires Canada to provide, subject to the provisions of the law of Canada (specifically section 126), a foreign tax credit for “tax payable in the Hellenic Republic on profits, income or gains arising in the Hellenic Republic.” For the purposes of Article 23 of the Treaty, Article 23(3) provides that profits, income or gains of a Canadian resident that may be taxed in Greece in accordance with the Treaty shall be deemed to arise from sources in Greece. Article 16(1) of the Treaty allows Greece to tax directors’ fees and other similar payments derived by a Canadian resident in that resident's capacity as a member of the board of directors of a company which is a resident of Greece.

Accordingly, to the extent that Greece imposes tax on the Director’s Fees in accordance with Article 16(1) of the Treaty, a corresponding Canadian foreign tax credit would generally be available under section 126 of the Act. There is no requirement in Article 16(1) for the board of directors’ meetings to occur physically in Greece.

Since neither Canada, nor Greece considers the Social Security Contributions as taxes, they are not taxes covered within the meaning of Article 2 of the Treaty. However, since subsection 126(1) applies on a country-by-country basis, rather than applying separately to each amount of tax paid, where the Taxpayer qualifies for administrative relief under ITTN No. 31R2, we would accept that the sourcing rule in Article 23(3) of the Treaty applies to the Director’s Fees when computing foreign tax credit under subsection 126(1) in respect of the non-business income tax which includes the Social Security Contribution, on the basis that the Director’s Fees may be taxed in Greece in accordance with Article 16(1) of the Treaty.

Consequently, where the Taxpayer attends meetings of the board of directors virtually from Canada, the Director’s Fees will be included in computing the Taxpayer’s qualifying income from sources in Greece for the purposes of subsection 126(1) even when the non-business income tax includes the Social Security Contributions in accordance with ITTN No. 31R2.

We trust that these comments will be of assistance to you.

Yours truly,

Ina Eroff
Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Unless otherwise indicated, all statutory references are to the Act.

2. Contributions of professionals, non salaried and self-employed persons are no not linked to declared income. Instead, they are determined according to insurance categories which insured persons can choose on an annual basis.

3. However, pursuant to the Canada-U.S Tax Convention, Canada has specifically agreed to give a foreign tax credit for FICA payments. Accordingly, the CRA will continue to treat a FICA payment as an “income or profits tax” for the purposes of the foreign tax credit in subsection 126(1).

4. Commentary on Article 2 of the OECD Model Tax Convention (2017), para. 3, as last updated by OECD (2025), The 2025 Update to the OECD Model Tax Convention.

5. Michael Lang, “Taxes Covered – What is a ‘Tax’ according to Article 2 of the OECD Model,” Bulletin for International Taxation 2005 (Volume 59), No. 6, (IBFD).

6. Consistent with the decisions in Nadeau v. The Queen, 2004 TCC 433, 2007 DTC 1670; Zong v. The Queen, 2019 TCC 270, and Vidal v. The Queen, 2022 TCC 54.

7. Hellenic Republic Ministry of Labour and Social Security, Social Security Basics (see link: Social Security Basics | TEKA).

8. The Folio, at paragraph 1.57.

9. Ibid, at paragraph 1.49.

10. Which is also consistent with paragraphs 3, 6 and 7 of the Commentary on Article 2 of the OECD Model Tax Convention (2017), where it is noted that social security contributions are not “taxes on the total amount of wages” where there is a direct connection between the levy and the benefits received and they do not fall within the scope of tax treaties unless expressly included.