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: Whether a war widow's pension from the UK received by a resident of Canada is exempt from tax in Canada.
Position: Not enough information to give a definitive answer.
Reasons: The payment must meet the requirements under paragraph 81(1)(e).
XXXXXXXXXX 2009-034295
Andrea Boyle
May 4, 2010
Dear XXXXXXXXXX :
Re: United Kingdom War Widows Pension
This is in reply to your email of October 1, 2009 in which you requested our comments as to whether a United Kingdom (UK) war widow's pension received by a person living in Canada with a Canadian Citizenship is exempt from Canadian Income Tax.
The particular situation outlined in your email appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.
Unless otherwise stated, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("Act").
In general terms, where a resident of Canada receives an amount out on account or in lieu of payment of, or in satisfaction of, "a superannuation or pension benefit", the full amount received, before withholding taxes, is taxable under subparagraph 56(1)(a)(i) unless a specific provision of the Act or the Canada-U.K. Income Tax Convention applies to exclude the amount.
Under Article 17 of the Canada-U.K. Income Tax Convention, periodic pension payments arising in a Contracting State (i.e. the UK) for the benefit and paid to a resident of the other Contracting State (i.e. Canada) are taxable only in that other Contracting State (Canada). There is no provision in Article 17 of the Convention which states that if income would be considered to be tax exempt in the UK then it would be considered to be exempt in Canada.
However, under paragraph 81(1)(e), a pension payment received by a resident of Canada will be exempt from taxation in Canada if the payment meets the following criteria:
- The payment is a pension payment.
- It is received on account of disability or death.
- The disability or death must have arisen out of a war.
- The country (i.e. the UK) must have been an ally of Canada at the time of the war.
- The country must grant substantially similar relief to payments referred to in paragraph 81(1)(d) arising in Canada and received by a resident of that country.
Paragraph 13 of Interpretation Bulletin IT-397R, Amounts Excluded From Income - Statutory Exemptions and Certain Service or RCMP Pensions, Allowances and Compensation, lists the countries that were allies or co-belligerents of Canada during the First and Second World Wars. As a member of the Commonwealth, UK figures on the lists of the countries that were allies of Canada at the time of the First and Second World Wars.
Paragraph 81(1)(d) exempts from taxation a pension payment, an allowance or compensation received under or subject to the Pension Act, the Civilian War-related Benefits Act or the War Veterans Allowance Act, an amount received under the Gallantry Awards Order or compensation received under the regulations made under section 9 of the Aeronautics Act.
Therefore, assuming that the UK would grant similar relief and providing that the pension is received on account of disability or death that arose out of a war, the UK war widow pension would be exempt from taxation in Canada under paragraph 81(1)(e).
We trust that these comments will be of assistance.
Yours truly,
Louise J. Roy, CGA
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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