22 March 2013 External T.I. 2012-0458481E5 - Foreign Pension Receipt

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.

Principal Issues: The Canadian tax implications of the receipt of income out of a foreign pension plan.

Position: In general, a Canadian resident must include any pension benefits received in a year in his or her worldwide income. Based on limited information available, the total amounts received are taxable.

Reasons: The total amounts received are included in income under subparagraph 56(1)(a)(i) of the Act. There is no provision in Article 17 of the Canada-U.K. Income Tax Convention which would exempt the amounts from Canadian income tax.

XXXXXXXXXX
2012-045848
K. Podor

March 22, 2013

Dear XXXXXXXXXX:

Re: Foreign Pension Receipt

This is in response to your correspondence wherein you requested information regarding the Canadian tax treatment of certain payments received out of a "Buy-Out Policy" held in the United Kingdom (U.K.). Specifically, you have asked how to treat a lump-sum payment received under the U.K.'s lifetime allowance rules.

Written confirmation of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency (CRA) publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-eng.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year.

We offer the following general comments on your enquiry.

Our Comments

The information provided in your letter indicates that from XXXXXXXXXX to XXXXXXXXXX you were a member of your employer's U.K. pension plan. In XXXXXXXXXX, as you commenced living in Canada and working for a Canadian sister company of the employer, you ceased to be a member of the plan and your pension funds were transferred to a "Buy-Out Policy" through a U.K. insurance company. We understand that, in XXXXXXXXXX, you became entitled to receive funds from this plan and were given some options. You elected to receive a "Lifetime Annuity Plan" that included a lump-sum payment beginning at age 65. We also understand that the lump-sum payment was in satisfaction of your Tax Free Cash Entitlement under the U.K.'s lifetime allowance rules.

The Income Tax Act generally defines a superannuation or pension plan to be a plan 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 and contributions are used to provide an annuity or other periodical payment on or after the employee's retirement in consideration for his or her employment services. As it appears that you are in receipt of amounts from a superannuation or pension plan, we will limit our comments to such a plan.

As a general rule, an individual must include any amounts received on account of a superannuation or pension benefit in his or her income for the year in which it is received, unless exempted by a tax treaty. In this regard, the Canada-U.K. Income Tax Convention does not prevent Canada from taxing superannuation or pension receipts.

In our view, based on the information provided, the lump-sum payment you have received is a superannuation or pension benefit and will be included in your income in the year of receipt.

Additional guidance on the tax implications for superannuation and pension benefits is provided in Income Tax Interpretation Bulletin No.: IT-499R, "Superannuation or Pension Benefits".

We trust these comments are helpful.

Lita Krantz, CPA, CA
Assistant Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch