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: 1. Whether periodic disability pension payments received under Switzerland's disability insurance legislation are taxable to a Canadian resident.
2. Whether retirement pension payments received under the Geneva State Pension Plan for public servants are taxable to a Canadian resident.
Position: 1. Yes. 2. In this case, no.
Reasons: 1. Periodic disability pension payments received under Switzerland's social security legislation are taxable as superannuation or pension benefits under subparagraph 56(1)(a)(i), with no exemption under Article 18 of the Canada-Switzerland tax convention. 2. Retirement pension payments from a political subdivision of Switzerland are taxable only by Switzerland under subparagraph 18(2)(a) of the Canada-Switzerland tax convention where paid to an individual who performed functions of a governmental nature.
XXXXXXXXXX 2011-040555
M. Allan
August 17, 2011
Dear XXXXXXXXXX :
Re: Swiss periodic disability insurance and retirement pension payments
We are writing in response to your facsimile dated May 4, 2011, regarding whether certain periodic disability insurance and retirement pension payments received from Switzerland are taxable to a Canadian resident.
More specifically, you have enquired whether the following are taxable to a Canadian resident:
(1) Periodic disability pension payments received under Switzerland's disability insurance legislation, Loi Fédérale sur l'assurance-invalidité, Status Suisse 831.20, and
(2) Retirement pension payments received from the Geneva State Pension Plan for public servants, Caisse de prévoyance du personnel enseignant de l'instruction publique et des fonctionnaires de l'administration du canton de Genève.
In the situation you described, an individual is currently a citizen of Switzerland and is contemplating becoming a resident of Canada. Prior to XXXXXXXXXX , the individual was employed by the Geneva State Government as a XXXXXXXXXX in a government department. The individual currently receives both types of payments described above.
Our Comments
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This information circular and other Canada Revenue Agency publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to provide the following general comments.
Under section 3 of the Income Tax Act ("Act"), residents of Canada are taxed on their worldwide income. Under subparagraph 56(1)(a)(i) of the Act, any amount received by a taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of, a superannuation or pension benefit is included in income. A superannuation or pension benefit includes any amount received out of a superannuation or pension fund or plan. Generally, a plan will be considered a superannuation or pension fund or 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 the contributions are used to provide an annuity or other periodic payments on or after the employee's retirement in consideration for his or her employment services. Subparagraph 56(1)(a)(i) of the Act applies to benefits from a foreign pension plan that are attributable to services rendered while the individual was not a resident of Canada. A superannuation or pension benefit also includes a periodic payment by a government to persons above a specific age (old-age pension) or disabled or widowed.
These sections of the Act are subject to the provisions of tax conventions between Canada and other countries.
1. Swiss periodic disability pension payments ("AI")
Our understanding is that the AI is provided under Switzerland's social security legislation. Both employers and employees make mandatory contributions towards the AI. Entitlement to the AI occurs when an employee meets the disability criteria under the legislation.
The Canadian courts have ruled that disability payments received from the Canada Pension Plan (CPP) are taxable as superannuation or pension benefits under subparagraph 56(1)(a)(i) of the Act. The AI and CPP are similar in nature, are enacted under their respective countries' social security legislation, and require mandatory employer and employee contributions. Accordingly, it is our view that AI received by a resident of Canada would be included in income under subparagraph 56(1)(a)(i) of the Act as a superannuation or pension benefit.
Under article 18 of the Canada - Switzerland Tax Convention ("Convention") regarding the taxability of pensions, the term "pension" does not include payments made under the social security legislation of a Contracting State. Since the AI is made under Switzerland's social security legislation, the payments do not fall under the term "pension" for purposes of the Convention. Therefore, the Convention does not apply to exempt these types of payments from taxation in Canada.
A foreign tax credit may be available under subsection 126(1) of the Act in respect to any withholding taxes paid to Switzerland on the AI. Foreign tax credits are described in more detail in IT-270R3, Foreign Tax Credit.
2. Geneva State Pension Plan Payments ("Geneva SPP")
The Geneva SPP is a retirement pension received from Geneva, a state of Switzerland, and would be included in income under subparagraph 56(1)(a)(i) of the Act as a superannuation or pension benefit.
Under subparagraph 18(2)(a) of the Convention, pensions paid by, or out of funds created by, Switzerland or a political subdivision or a local authority thereof, to any individual in respect of services rendered to Switzerland or a subdivision or local authority thereof, in the discharge of functions of a governmental nature are taxable only in Switzerland. Based on the information that you provided, the Geneva SPP received by the individual appears to satisfy these conditions of the Convention and is only taxable in Switzerland.
Although the Geneva SPP received is included in income under subparagraph 56(1)(a)(i) of the Act, a deduction under subparagraph 110(1)(f)(i) of the Act is allowed so that the payments are not taxable in Canada.
We trust these comments will be of assistance.
Nerill Thomas-Wilkinson
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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