10 June 2010 External T.I. 2011-0400781E5 - German pension received by Canadian resident

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: Is any relief available from double taxation in respect of a German pension

Position: Yes

Reasons: A German social security pension received by a Canadian resident is taxable in Canada, to the extent that the pension would be taxable if the taxpayer was resident in Germany. The non-taxable portion of the German pension is determined by reference to the relevant CRA news release and is deductible under subparagraph 110(1)(f)(i) in computing taxable income. A foreign tax credit is available under section 126 in respect of the German pension income received by the taxpayer and which has been subject to tax in Germany.

XXXXXXXXXX 							2011-040078
								W. Doiron
June 10, 2011 

Dear XXXXXXXXXX :

Re: German pension received by Canadian resident

This letter is in response to your email dated March 28, 2011 wherein you requested clarification on how to obtain relief from double taxation as a result of recent tax assessments by the German Tax Authority in respect of German pension payments ("German pension") received in 2005 to 2010. While not specifically stated in your email, it is assumed that the pension benefit is derived under social security legislation from Germany and is not related to compensation for an injury or damage sustained as a result of hostilities or past political persecution.

In general, all foreign pensions such as German pensions are required to be included in income in accordance with paragraph 56(1)(a) of the Income Tax Act (the "Act"). In some cases, all or a portion of a foreign pension may be exempt from Canadian tax by virtue of a provision contained in a tax treaty that Canada has with another country. Subparagraph 110(1)(f)(i) of the Act provides for a deduction from income in respect of any such non-taxable foreign pension amount.

For the years up to and including 2002, German pensions were not taxable in Canada based on Article 18 of the former Canada-Federal Republic of Germany Tax Agreement (old Treaty). For the 2003 and subsequent years, the tax treatment for German pensions was changed as a result of paragraph 3(c) of Article 18 of the new Canada-Federal Republic of Germany Tax Agreement (new Treaty). Pursuant to this provision, the same amount of German pension that would have been included in income if the individual had been a resident of Germany will be included in income for a resident of Canada.

The German Tax Authority amended their domestic tax legislation in 2005 to ensure that all or parts of the social security benefits paid are subject to tax in Germany. Since these benefits are not subject to withholding tax at source in Germany, non-residents of Germany are required to file a tax return in Germany to determine their tax liability. The 2005 amendments also changed the portion of German pensions subject to tax in Germany.

The Canada Revenue Agency (CRA) news release entitled, Change to the taxation of social security pensions received from Germany by a resident of Canada - BEGINNING 2005 explains the changes to the taxation of social security pensions that residents of Canada receive from Germany and its application for the 2005 and subsequent taxation years. This news release can be found on the CRA website at www.cra-arc.gc.ca/tx/nnrsdnts/ntcs/grmny2005-eng.html.

In general, a foreign tax credit may be claimed on a taxpayer's Canadian tax return for the tax paid to the German Taxing Authority in respect of the German pension received. The foreign tax credit will reduce or eliminate the double taxation of such income. For more information on claiming a foreign tax credit, please refer to Interpretation Bulletin IT-270R3, Foreign Tax Credit at www.cra-arc.gc.ca/E/pub/tp/it270r3/README.html.

We invite you to contact your local tax services office to request a reassessment of your income tax returns to deduct the non-taxable portion of the German pension previously included in your taxable income, and to claim a foreign tax credit. You can find information for tax services office locations at www.cra-arc.gc.ca/cntct/tso-bsf-eng.html. You can find more information about requesting a change to your tax return at www.cra-arc.gc.ca/changereturn.

We trust these comments will be of some assistance.

Yours truly,

Steve Fron
Acting Manager
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch