20 September 1995 Internal T.I. 9522086 - PERIODIC PMTS AND PENSION, TREATY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Is a periodic pension supplement referred to as a retiring allowance a pension for purposes of Article XVIII of the Canada-U.S. Income Tax Convention (1980)?

Position TAKEN:

Letter relates to past transactions so it was referred to International Tax Directorate. However, amount would likely be pension for purposes of Convention.

Reasons FOR POSITION TAKEN:

Periodic pension supplement paid by employer would be a pension for purposes of the Convention even though it may be a retiring allowance and not a pension for purposes of the Act.

			September 20, 1995

	HEADQUARTERS	HEADQUARTERS
	International Tax Directorate	M.P. Sarazin
	André Viau	(613) 957-3499
	Chief of Withholding
			952208

Pension Supplement and Withholding Taxes

As per our telephone conversation of September 13, 1995 (Viau/Sarazin), we are forwarding a letter (the "Letter") sent to us by XXXXXXXXXX a resident of the United States, requesting our views regarding the applicability of Article XVIII of the Canada-U.S. Income Tax Convention (1980) (the "Convention") to a pension supplement he is receiving from his former employer, XXXXXXXXXX (the "Employer"). In the event that the pension supplement qualifies as a pension for purposes of the Convention, he has requested that we notify the Employer in order to ensure that the pension supplement is subjected to the proper withholding taxes.

It would appear that XXXXXXXXXX retired at the age of 55 and he is receiving a monthly pension from the Employer's pension plan. The monthly pension includes a transitional allowance (early retirement incentive) designed to supplement his income until he is eligible for Canada Pension Plan and/or Old Age Security Pension (at age 62). The first 26 monthly pension payments (supplement included) were subjected to 15% withholding tax in accordance with Article XVIII of the Convention. However, the pension supplement is now being subjected to a 25% withholding tax in accordance with the position expressed in paragraph 15 of Interpretation Bulletin IT-337R2 titled Retiring Allowances.

We are referring the file to your division because it involves a specific non-resident taxpayer and past transactions. Without a review of the specific documentation involved, we cannot comment on the particular payments referred to in the Letter, however, we are prepared to offer the following general comments.

For the purposes of the Convention, the term pension includes any payment under a pension plan. Consequently, periodic payments from a pension plan will be subjected to the 15% withholding taxes in accordance with Article XVIII of the Convention.

In the event that the pension supplement is paid by an employer, we are of the view that a periodic pension supplement paid on or after retirement in recognition of service in an office or employment and paid in the nature of a pension would be considered a pension for purposes of the Convention. This would be the case even though the pension supplement paid by the employer may be considered a retiring allowance and not a pension for purposes of the Income Tax Act.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch