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Principal Issues: Whether retirement pension payments received under a Swiss canton’s pension plan in respect of nursing services provided to the general public are exempt under Article 18(2)(a) of the Canada-Switzerland tax treaty?
Position: No.
Reasons: Health care services provided to the general public do not generally represent services rendered to a State.
XXXXXXXXXX 2016-064589
Sylvain Grégoire
May 15, 2017
Subject: Income derived from Switzerland
Dear Madam,
This is further to your correspondence dated April 23, 2016, in which you requested our views as to whether the terms of subparagraph 2(a) of Article 18 of the Canada-Switzerland Tax Convention (the "Convention") apply in order to exempt from Canadian tax certain amounts received by a resident of Canada from Switzerland. We apologize for the delay in responding to your request.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Your submission
In particular, we understand that your questions relate to the Canadian tax treatment of two types of payments, namely a pension benefit from the Pension Fund of XXXXXXXXXX, a Swiss canton, as well as old-age and survivors' ("OAS") benefit from XXXXXXXXXX.
You are considering the situation of a person who would benefit from these benefits due to working as a nurse at a Swiss public hospital. We understand that any person occupying a position at XXXXXXXXXX is compulsorily insured by the XXXXXXXXXX and is therefore required to contribute to it. As such, when eligible for retirement, such a person would be eligible for an annuity paid by XXXXXXXXXX, the amount of which would be based on the age at retirement, years of service, and the amount of eligible income. As for the OAS, it is our understanding that benefits from this plan are paid by the Canton to enable seniors to meet their basic needs.
Our Comments
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Subparagraph 56(1)(a)(i) provides that there shall be included in computing the income of a taxpayer for a taxation year, any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of a “superannuation or pension benefit”. The expression “superannuation or pension benefit” is defined in subsection 248(1) and includes "any amount received out of or under a superannuation or pension fund or plan ... and, without restricting the generality of the foregoing, includes any payment made to a beneficiary under the fund or plan… .” The question of whether a particular plan is a superannuation or pension fund or plan for the purposes of the Act is one of fact that can be determined only after considering all the relevant facts and circumstances of a particular situation.
However, based on the information you have provided, it seems to us that the benefits from the XXXXXXXXXX and the OAS benefits can be considered as "superannuation or pension benefits" for the purposes of the Act. Consequently, amounts received by a taxpayer from these plans in a taxation year would generally be included in computing income the taxpayer's income for the year under subparagraph 56(1)(a)(i) .
Nonetheless, equivalent amounts may be claimed by the taxpayer under subparagraph 110(1)(f)(i) as deductions in computing taxable income for the taxation year , provided that the “superannuation or pension benefits” amounts are exempt from income tax in Canada by virtue of a provision of a tax treaty. In this regard, Article 18, paragraph 2(a), of the Convention provides for such an exemption. In order to be eligible, the amount of the pension must be paid by Switzerland, or one of its subdivisions, in respect of "services rendered to Switzerland" or to that subdivision.
For the purposes of the application of this provision of the Convention, we are generally of the view that the term "services rendered to Switzerland" refers to services rendered in the course of functions of a public character. The executive, legislative and judicial functions of a State constitute such functions, including the identification, development and implementation of government policies. This position appears to us to be supported by the decision of the Tax Court of Canada in Cloutier v. The Queen (2003 TCC 58), which was, however, decided in a situation involving the application of the Tax Convention between Canada and the United States of America. Although this decision cannot validly be regarded as a precedent for the purposes of the Convention, it appears to us to be illuminating for the purposes of interpreting the relevant provision of the Convention in this case.
In this context, we are of the view that the exercise by a person of duties as a nurse within the Swiss healthcare sector, which is essentially dedicated to the provision of services for the benefit of the community as a whole, does not generally qualify as "services rendered to Switzerland" for the purposes of paragraph 2(a) of Article 18 of the Convention. Thus, the deduction under subparagraph 110(1)(f)(i) could not be claimed by such a person, and Canada would retain its right of taxation. It is also important to note that persons receiving benefits from the XXXXXXXXXX and OAS benefits may be entitled to a reduction in their Canadian tax otherwise payable in the form of a foreign tax credit for all or part of the income tax paid to a foreign jurisdiction in respect of such amounts.
We hope that our comments will be of assistance.
Best regards,
Yannick Roulier, LL.B., D.Fisc.
for the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch
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