15 February 1988 Income Tax Severed Letter 5-5087 - [Taxability of a Canadian Service Pension]

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

R.C. O'Byrne (613) 957-2126

February 15, 1988

XXXX

This is in reply to your letter of November 11, 1987 regarding the taxability of your husband's Canadian Service pension (the "pension").

We note that you are concerned about the United Kingdom Inland Revenue Department's proposal to tax XXXX and that you have asked us for any advice we can offer. Also we note you have provided us with photocopies of relevant letters for information purposes.

Based on the information you have provided us with it appears that XXXX. Assuming this is the case the pensions taxability would have been affected by each of the reciprocal tax agreements that have been in effect between Canada and the United Kingdom since 1946. The reciprocal tax agreements that were in effect from 1946 until 1981 did not make the pension taxable in either Canada or the United Kingdom. The current reciprocal agreement, the Canada - United Kingdom Income Tax Convention (1978) (the "1978 Convention"), came into effect in 1981 and gave the state of residence the right to tax pensions received from the other state. Under Article XVII of the 1978 Convention the paying state maintained its right to tax the portion of the pension payments in excess of the greater of ten thousand Canadian dollars ($10,000) or five thousand pounds sterling (5,000) from 1981 to April 6, 1986. Effective April 6, 1986 Article XVII of the 1978 Convention was amended to provide that the paying state could no longer tax pensions originating in their jurisdiction after that date. We have attached photocopies of the original and amended Article XVII for your information. In this regard we note that the Canadian Government did XXXX.

Because of the amendments to Article XVII of the 1978 Convention described above your XXXX. If this is the case and your husband wishes to claim a refund of this tax, a letter signed by him should be sent to Revenue Canada, Taxation to make this request. Any letter of this nature should

a) explain the situation (e.g. pension payments from January 1, 1986 to April 6, 1986 did not exceed $10,000 Cdn.),

b) indicate that the refund request is being made pursuant to the 1986 amendment to Article XVII of the 1978 Convention,

c) have a copy of the letter dated October 26, 1987 from Supply and Services Canada to your husband regarding gross pension and tax withheld attached, and

d) be sent to:

District Taxation Office Century Building 360 Lisgar Street Ottawa, Ontario K1A 0L9.

We would stress that if your husband requests a refund of the 1986 tax withheld he must do so prior to December 31, 1988.

In addition to the above the 1978 Convention provides that in order to avoid double taxation the country of residence is required to provide a foreign tax credit for any taxes paid to the other country.

As the reciprocal tax agreements in effect from 1981 to the present between Canada and the United Kingdom provide that the United Kingdom may tax your husband's pension if it wishes, the taxability in the United Kingdom of that pension will be determined by that country's income tax laws. Except to inform you that your husband may be eligible for a refund of the tax withheld from his pension by the Canadian Government during 1986 and that he should be eligible for a foreign tax credit in the United Kingdom with respect to any Canadian tax paid on the pension, we regret that we are unable to provide you with any further assistance.

Yours truly,

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