23 March 1984 Income Tax Severed Letter B-5093 - [Pension Income Attributable To Service Performed Outside Canada]

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.

March 23, 1984

Accounting & Collections Division W.J. Massal, Director

T.C. McIntyre Non-Resident Project Team

Non-Corporate Rulings Division D.S. Delorey 995-2455

Pension Income Attributable To Service performed Outside Canada ----------------------------------------------------------------

This is in reply is your Round Trip Memorandum dated February 9 concerning the exigibility to tax of pension income received by residents and non- residents of Canada and to which entitlement thereto is attributable to services performed outside Canada.

In particular, your questions relate to an enquiry from Louise Link of the Treasury Board of Canada Secretariat concerning pensions paid to former employees of the Government of Canada whose services on which the pensions are based were performed outside Canada.

RECEIVED BY A PERSON RESIDENT IN CANADA

Since none of the exemptions in subsection 81(1) of the Act apply, such pension income is subject to tax pursuant to subparagraph 56(1)(a)(i) of the Act, regardless of where the underlying services were performed. However, pursuant to Article XVIII of the Canada-France Tax Convention, the relevant pensions paid by the two French insurance companies would not be taxable in Canada.

RECEIVED BY A NON-RESIDENT OF CANADA

1. The "non-contributory plan" appears not to be a "registered fund or plan". Thus, paragraph 212(1)(h) of the Act is applicable only if the pension payments are being made by a resident of Canada. This is distinguishable from the "contributory plan" which is a "registered pension fund or plan". In this latter case, the provisions of paragraph 212(13)(c) of the Act apply with the result that paragraph 212(1)(h) of the Act is applicable, notwithstanding that the payer is a non-resident of Canada.

2. If paragraph 212(1)(h) of the Act applies, consideration must be given to the exceptions set out in parts (v) and (vi) thereof. With respect to whether the underlying services were rendered in a taxation year during which the pensioner was resident in Canada, each year for which the pensioner was deemed to be resident in Canada by virtue of subsection 250(1) of the Act would be such a year. With respect to whether the underlying services were rendered in a taxation year during which the pensioner was employed, or occasionally employed in Canada, the pensioner must have factually been employed during those years; i.e., the deeming provisions of paragraph 115(2)(d) of the Act are in our views not relevant for purposes of paragraph 212(1)(h) of the Act.

3. Once the extent to which the pension payments are subject to Part XIII tax pursuant to paragraph 212(1)(h) of the Act is determined, consideration must be given to whether a reciprocal tax treaty with the pensioner's country of residence reduces or exempts entirely the 25% Part XIII tax. For instance, pursuant to Article VIA of the current U.S. treaty, a resident of the U.S. will be exempt from the aforementioned Part XIII tax. This will not be the case, however, under the proposed Canada-U.S. treaty. Reference should be made to Information Circular 76-12R2 for information concerning the applicable withholding tax rates for residents of other treaty countries.

GENERAL

With respect to your question concerning U.N. joint staff, the exception referred to in IT-397 does not extend to pensions paid to former officials of the organizations referred to in paragraphs 3 and 4 thereof. The relevant exceptions apply to "salaries and bonuses" received by certain "officials" of those organizations. It is our view that a pension is not a "salary or emolument", nor is a retired employee an "official" of the organization for which he was previously employed.

for Director Non-Corporate Rulings Division

56(1)(a)(i) 81(1)(a) 212(1)(h)