5 May 1993 Ruling 9308451 F - Hong Kong War Memorial 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.

ISSUE SHEET

Issue

We have been contacted by the Victoria District Office to determine whether or not an individual in receipt of a pension from the Hong Kong War Memorial Pension is taxable in Canada. The taxpayer in question indicated that she has only been in receipt of the pension payments for the last two months of 1992.

The pension is payable by the Hong Kong government to certain qualified individuals including the following: an individual who served as a member of any service specified in the attached Schedule between December 7, 1941 and December 25, 1941 and sustained an injury or was captured by the Japanese and held captivity, or to a unmarried widow or widower of such an individual; an unmarried widow or widower of an qualified individual who was killed in action, died as a result of and injury sustained in action or died as a result of an injury or hardship sustained during such service; an individual who was subject to torture by or under the order of the Japanese authority in Hong Kong during the period from December 7, 1941 to September 1, 1945 or a spouse of such an individual; and a widow or widower of a person executed by or under the order of the Japanese authority in Hong Kong during the period from December 7, 1941 to September 1, 1945 on any ground other than the commission of an offence which would have been punishable by a mandatory sentence of death penalty under the law of Hong Kong prevailing on December 7, 1941 had the offence been committed on that date and that the applicant is unmarried. The pensions are payable in accordance with the Hong Kong War Memorial Pensions Ordinance 1991.

The current monthly pension benefits are as follows:

Single adult pension 3410 Hong Kong ($555 Can) Married couple pension 5730 Hong Kong ($936 Can) Special needs allowance 825 Hong Kong ($135 Can)

Discussion

Section 81 of the Income Tax Act (the "Act") provides for the exemption for certain war pensions. In particular paragraph 81(1)(e) of the Act specifically exempts pension payments received on account of disability or death arising out of a war from a country that was an ally of Canada at the time of the War if that country grants substantially similar relief for the year to a person receiving certain Canadian pensions.

Paragraph 81(1)(e) of the Act would cover pensions resulting from disability or death and would cover pensions received in respect to individuals who were captured by the Japanese and held in captivity if we can argue that such individuals were probably disabled either physically or mentally because of the harsh treatment provided to such individuals. The other question is whether or not Hong Kong could be classified as a country that was an ally of Canada at the time of the war. It is our view that since Hong Kong is a colony of the United Kingdom it is arguable that for these purposes it fits within the Commonwealth countries and that such pensions should qualify for an exemption under paragraph 81(1)(e) of the Act. The last remaining qualification is that the United Kingdom (Hong Kong) must provide similar relief with respect to certain Canadian war pensions. The "Tax Laws of the World" includes the Tax Laws of Hong Kong which were updated in May 1992. The Foreward to the "Inland Revenue Ordinance" Cap. 112 titled "Taxation on Property, Earnings, Profits and Interest" reads as follows:

Tax is charged only on income or profits arising in or derived from Hong Kong: no tax is applied to income or profits arising abroad, even if remitted to the Colony.

Since Hong Kong does not tax Canadian pensions received by Hong Kong residents, it is arguable that Hong Kong grants substantially similar relief for a person receiving a pension from Canada as required in paragraph 81(1)(e) of the Act.

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Recommendation

We would recommend that the Hong Kong War Memorial Pension be considered to fall within the exemption set out in paragraph 81(1)(e) of the Act.