23 September 1999 External T.I. 9922715 - FOREIGN PENSION DISABILITY

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: Characterization of payments received by Canadian resident from U.K. Firemen's Pension Scheme Order, 1973.

Position: Likely pension income taxable under subparagraph 56(1)(a)(i) of the Act.

Reasons: See E56303, 60227A, 9824385, 9819877, 9824890, EC08808

xxxxxxxxxx 992271
G. Moore
September 23, 1999

Dear XXXXXXXXXX:

Re: Foreign Brigade Injury Pension

We are replying to your letter of August 17, 1999, regarding the taxation of a Fire Brigade Injury Pension you receive from the XXXXXXXXXX in the United Kingdom.

As we understand it, because of your medical condition, you were no longer fit to continue as an operational firefighter and you were discharged from the XXXXXXXXXX on medical grounds pursuant to the Firemen's Pension Scheme Order 1973 as of March 28, 1990. You were granted an ill-health and injury pension together with an injury gratuity. According to the documentation you submitted, as of XXXXXXXXXX, the gross annual amount of the Fire Brigade Injury Pension consisted of a basic pension of XXXXXXXXXX Pounds and XXXXXXXXXX Pounds, as well as an injury pension of XXXXXXXXXX Pounds and XXXXXXXXXX Pounds. You are now a Canadian resident.

Our Comments

Under subparagraph 56(1)(a)(i) of the Income Tax Act (the "Act"), an amount received by a taxpayer in the year as, on account or in lieu of, or in satisfaction of a "superannuation or pension benefit" would be included in his or her income. Pursuant to the definition of "superannuation or pension benefit" in subsection 248(1) of the Act, such benefits include "any amount received out of or under a superannuation or pension fund or plan". The determination of whether an amount received by a taxpayer constitutes a "superannuation or pension benefit" is a question of fact that can only be determined after a review of all of the relevant facts. If after a review of the facts, it is established that an amount represents a superannuation or pension benefit, the amount would be included in the recipient's income under subparagraph 56(1)(a)(i) of the Act.

A pension received by a resident of Canada out of an unregistered foreign superannuation or pension plan is subject to tax in the same way as a pension received from a source in Canada under subparagraph 56(1)(a)(i) of the Act unless exempted by the provisions of a tax treaty. Paragraph 1 of Article 17 of the Canada - U.K. Income Tax Convention (1973) ( the "Convention") provides that pensions arising in the United Kingdom and paid to a resident of Canada are taxable only in Canada. Paragraph 3 of Article 17 of the Convention indicates that for the purpose of this Convention, the term "pension" includes, among other things, any payment under a superannuation, pension or retirement plan. As there is no relieving provision in the Convention relating to the pension you receive, based on the information you provided, it appears that the Fire Brigade Basic Pension and the Injury Pension you receive under the Firemen's Pension Scheme Order 1973, are both taxable pursuant to subparagraph 56(1)(a)(i) of the Act. Unfortunately, the fact that all or a portion of the payments received by you may relate to an injury would not result in the amounts being excluded from being considered a superannuation or pension benefit for purposes of the Act. Subsection 81(1) of the Act does exempt from taxation certain pension payments received on account of disability or death that would otherwise be included in income pursuant to subparagraph 56(1)(a)(i) of the Act. However, there is no general exemption for disability pensions such as the one described herein.

Where a tax treaty does not intervene to exempt payments from a foreign superannuation or pension plan and the plan also qualifies as an "employee benefit plan", as defined in subsection 248(1) of the Act, and all or part of the pension is attributable to services rendered in a period during which the recipient was resident in Canada, that portion is brought into income under paragraph 6(1)(g) of the Act as employment income and excluded under subparagraph 56(1)(a)(i) of the Act as superannuation or pension income. In your situation, as the foreign pension was attributable to services rendered in a period during which you were not resident in Canada, the payments from the Firemen's Pension Scheme Order 1973 would not be taxable under paragraph 6(1)(g) as employment income, but would appear to be taxable as pension or superannuation income under subparagraph 56(1)(a)(i) of the Act.

Amounts received by a taxpayer or the taxpayer's dependant that qualify as special or general damages for personal injury or death are excluded from income regardless of the fact that the amount of such damages may have been determined with reference to the loss of earnings of the taxpayer in respect of whom the damages were awarded. Amounts in respect of damages for personal injury or death may be received by an injured taxpayer or by a dependant of a deceased taxpayer on account of accrued or future loss of earnings or compensation for pain and suffering, and loss of earning capacity. However, in your case, it does not appear that the payments in question are in the nature of general or special damages awarded for personal injury.

We trust our comments will be of assistance to you and we regret that our response could not be more favourable.

Yours truly,

J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch