19 May 1987 Income Tax Severed Letter 5-3225 - [Article XVII of the Canada-UK Tax Convention]

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.

XXXX

D. Lanos (613) 957-2125

May 19, 1987

XXXX

This is in reply to your letter of March 18, 1987 addressed to the Canadian High Commission in London. It has been forwarded to us by the Department of Veterans Affairs (Canada) for reply.

You have queried the income tax treatment to be accorded by both Canada and the United Kingdom to your Canadian-sourced Canadian Armed Forces pension income received in 1985 and 1986 as a resident of the United Kingdom.

With regard to 1985, paragraph 1 of Article XVII of the Canada-United Kingdom Tax Convention (1978) (the "Convention") as it read before its amendment on April 6, 1986 permits the United Kingdom to tax Canadian-sourced pensions received by a resident of the United Kingdom. In this regard we agree with the advice given to you by the Inland Revenue that you became subject to tax in the United Kingdom from the date you became resident in that country in 1984. Article XXI of the Convention requires that the United Kingdom allow as a credit against United Kingdom tax the lesser of the Canadian income tax paid or the United Kingdom tax otherwise payable on the pension and other Canadian-sourced income which has been included in your income for United Kingdom tax purposes. You advise that this has been done.

The above-mentioned paragraph 1 of Article XVII of the Convention also permits Canada to tax your Canadian-sourced pension income received in 1985 but only to the extent that it exceeds $10,000. We are enclosing for your information a copy of Information Circular 76-12R dated July 5, 1985 which indicates that the withholding tax levied under Part XIII of the Canadian Income Tax.Act (the "Act") on pension payments to residents of the United Kingdom is adjusted to take into account the above exemption under Article XVII of the Convention.

As you are aware, Article XVII of the Convention was amended effective April 6, 1986. That amendment will have the following effect on the taxation of your Canadian-sourced pension income received in 1986 end subsequent taxation years. The United Kingdom, as your country of residence, will continue to have a right to tax all periodic pension payments received by you. Canada on the other hand will have the limited right to tax those periodic pension payments received in excess of $10,000 on or after January 1, 1986 and before April 6, 1986; and thereafter it will not have any right to tax such pension payments. The United Kingdom will continue to allow a foreign tax credit under Article XXI of the Convention in respect of Canadian income tax paid on pension and other Canadian-sourced income which has been subjected to United Kingdom tax.

We hope that the above comments have clarified that under the provisions of the Convention there will not be any double taxation of your Canadian Armed Forces pension received in 1985 or in 1986 and subsequent taxation years.

Yours truly,

for Director Reorganizations and Non-resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

Encl.

c.c.: Mr. G. Greenhalgh Veterans Affairs Division Canadian High Commission London, England W1X OAB