29 November 1990 External T.I. 9026825 F - Transfer of U.K. Pension to U.K. Personal Pension Contract

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.

19(1)

November 29, 1990

Dear Sirs:

Re:  Transfer of UK Pension to U.K. Personal Pension Contract

This is in reply to your letter of September 25, 1990, wherein you requested our comments in respect of the above noted topic.

It is our understanding that, in the U.K., a member of a defined benefit group pension plan has the right, upon termination of employment, to transfer the cash equivalent value of his deferred pension to a U.K. Personal Pension Contract ("PPC"). The investment income under a PPC is tax exempt in the U.K. PPC's are issued by insurance companies and are certified pension schemes for purposes of the Social Security Act. The PPC is governed by a trust deed and provides that either the funds be used to purchase a life time pension or the individual elects to withdraw 25% of the funds tax free and use the balance to purchase a life time pension.

You specifically pose 4 questions in respect of the following situation:

-         A Canadian/U.K. citizen works for a U.K. employer and participates in a U.K. group pension plan.

-         After accruing a group pension in the U.K., the Canadian,/U.K. citizen terminates his U.K. employment and returns to Canada and re-establishes Canadian residency.

-         Subsequent to this, the Canadian resident proposes to exercise his right to transfer the cash equivalent value of his deferred U.K. group pension to a PPC.

We will respond to your questions in the order that they were raised:

1,2       It is our view that where a Canadian resident receives an amount under a U.K. pension plan, either directly or indirectly through a transfer to his PPC, such an amount will be included in his income as a superannuation or pension benefit under paragraph 56(1)(a) of the Income Tax Act (the "Act").

     In this regard we note that Article XVIII of the Canada-U.S. Income Tax Convention specifically provides an exemption to a Canadian resident in respect of any pension that would be tax exempt in the U.S. However, there is no similar provision contained in the Canada-U.K. Income Tax Convention.

3.     It is our position that income earned in the PPC trust in the year would be subject to tax by virtue of subsection 94(1) of the Act where the individual has been resident in Canada for a period of, or periods the aggregate of which is more than 60 months.

4.     Finally we note that a lump sum payment under the U.K. pension plan that is included in the individuals income under paragraph 56(1)(a) of the Act may be transferred to a registered retirement savings plan ("RRSP") pursuant to paragraph 60(j) of the Act to the extent that it is attributable to services rendered when the individual was a U.K. resident. However, amounts under a PPC would not be eligible for a transfer to an RRSP.

We trust the above comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate