14 August 1998 External T.I. 9808815 - EUTELSAT PENSION SCHEME UK

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: Whether an Eutelsat Pension Scheme payments are tax exempts.

Position: Question of fact.

Reasons: Subject to Article XVII of UK treaty and paragraph 56(1)(a).

XXXXXXXXXX 5-980881
Fouad Daaboul

Attention: XXXXXXXXXX

August 14, 1998

Dear Sirs:

Re: Eutelsat Pension Scheme (“EPS”)

This is in reply to your letter of March 5, 1998, wherein you requested our views on requirements for tax-exemption under the International Protocol agreements. We assume that your question relates to whether payments out of or under an EPS to a Canadian resident beneficiary are exempt from income taxation under the Canada - United Kingdom Tax Convention (1978) (the “Convention”).

Under the Convention, a pension payment, which includes a payment out of a superannuation, pension or retirement plan according to Article XVII(3), arising in the United Kingdom (the “UK”) and paid to a Canadian resident is only taxable in Canada pursuant to Article XVII(1)).

An amount received from an EPS may be transferred to a registered retirement savings plan (“RRSP”) as defined under subsection 146(1) of the Income Tax Act (the “Act”) and deducted in computing income for a year in accordance with the provisions of paragraph 60(j) of the Act when the amount received is included in the recipient's income for the year under the provisions of paragraph 56(1)(a) of the Act. However, an amount received out of an EPS will only be included in the recipients income under paragraph 56(1)(a) of the Act if it is a superannuation or pension benefit or is an amount received out of a "foreign retirement arrangement" (“FRA”).

An FRA is defined in subsection 248(1) of the Act and is a plan or arrangement prescribed by section 6803 of the Income Tax Regulations. However, to date, only plans commonly known as Individual Retirement Accounts that are described in subsections 408(a), (b) or (h) of the United States Internal Revenue Code have been prescribed. In consequence, amounts received out of a UK EPS would not be included under this provision.

Amounts received out of an EPS will also not fall within the provisions of paragraph 56(1)(a) of the Act as superannuation or pension benefits except to the extent the EPS can be considered to be a superannuation or pension plan. In our opinion, this will only occur where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee or in some cases, where amounts have been contributed by a government.

We would also like to draw to your attention the fact that in addition to the provisions noted above, various other provisions of the Act may have application to a UK EPS held by a resident of Canada. In particular, if the EPS is a trust, it will likely be subject to the provisions of section 94 of the Act whether it is a pension plan or a retirement savings plan. Furthermore, if the plan is not a trust, but is held in the form of an annuity or deposit, the various rules pertaining to the annual reporting of income from property may apply. Accordingly we would suggest that holders of these types of plans should review their circumstances and determine what their current reporting obligations may be.

If further assistance is required, the Department would be pleased to discuss any particular situations on a case by case basis.

We trust our comments will be of assistance to you.

Yours truly,

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