8 October 1997 External T.I. 9722635 - FOREIGN PLAN, GERMAN 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.

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:Will

a specific German pension plan be a foreign plan under the Act.

Position:

No

Reasons:

The plan would not be an RCA but for paragraph l of the RCA definition. Hence it can not be a foreign plan

972263
XXXXXXXXXX W.C. Harding

Attention: XXXXXXXXXX

October 8, 1997

Dear Sirs:

Re: German Pension Arrangements

This is in reply to your letter of July 18, 1997, addressed to the XXXXXXXXXX Tax Services Office and referred to us for reply.

Your query involves the treatment of a German pension arrangement maintained in respect of three of your employees. In your letter you outlined a number of factors for our consideration. However, you did not provide any documents or the specific terms of the arrangements in question. Accordingly, our comments must be limited to general observations that may or may not apply to the specifics of your situation. Should you require a more detailed expression of our views, you will have to make further representations with the tax services office. In this respect, a copy of this letter has been provided to the XXXXXXXXXX Tax Services Office.

You are concerned that if the German pension plans constitute foreign plans as defined in Regulation 8308.1 of the Income Tax Regulations (the "Regulations"), you will be required to compute a PA for each of the employees involved. However, you note that a plan can only be a foreign plan if the plan would also be a retirement compensation arrangement (an "RCA") as defined in subsection 248(1) of the Income Tax Act (the "Act") but for paragraph (l) of that definition. Accordingly, in your opinion, the plans could not be RCAs because the plans themselves do not require funding and are not funded. In your opinion the payment of premiums under the insurance coverage do not constitute funding of the plans.

You have also determined that amounts accrued under the plans will not represent amounts taxable to the employees pursuant to subsections 5(1), 6(1)(a), or paragraph 56(1)(a) of the Act but that the employees will be taxable under paragraph 56(1)(a) of the Act on amounts received out of the plan if they are resident in Canada at the time of payment.

Our Opinion:

Since the employers are required by German law to participate in the pension insurance plan we would think any payments under that plan would constitute contributions under an arrangement to fund the benefits provided in the private pension plans. However it would also appear to us that these arrangements would be excluded from the definition of an RCA by paragraph (m) of the RCA definition in that the pension insurance plan is an insurance policy. Accordingly, the arrangements would not, but for paragraph (l) of the RCA definition, be RCAs and would not be foreign plans. No PA amounts would, therefore, need to be reported with respect to them.

Generally foreign pension benefits are taxed when they are received by residents of Canada. In some cases income earned on amounts held in funded plans may be subject to taxation as it is earned. However, a determination of the taxation in any specific case could only be made with reference to the specific details of the plans in question.

We trust our comments will be of assistance.

Yours truly,

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