6 February 2006 External T.I. 2004-0080131E5 - War Veterans Pension from Australia

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 war veteran pension received from Australia by a resident of Canada is taxable in Canada.

Position:

Not enough information to give a definitive answer.

Reasons: Article 18 of the Canada-Australia treaty does not provide any exemption. However, the pension payment will be exempt from tax in Canada if it meets the requirements in paragraph 81(1)(e).

								2004-008013
XXXXXXXXXX 							Isabeau Morrissette
(613) 957-2118
Attention: XXXXXXXXXX  

February 6, 2006

Dear XXXXXXXXXX:

Re: War Veterans pensions received from Australia

We are writing in response to your letter dated June 6, 2004 regarding the tax treatment of War Veterans disability pension received from Australia by a resident of Canada.

Under article 18 of the Canada-Australia Income Tax Convention, pensions arising in a Contracting State (i.e. Australia) for the benefit and paid to a resident of the other Contracting State (i.e. Canada) may be taxed in that other Contracting State (Canada). There is no provision in Article 18 which states that if income would be considered to be tax exempt in Australia then it would be considered to be exempt in Canada.

However, under paragraph 81(1)(e) of the Income Tax Act (the "Act") a pension payment received because of a disability or death arising out of war service received from a country that was an ally of Canada at the time of the war, will be exempt from taxation in Canada. In order for the exemption to apply, the foreign country that pays the pension must grant substantially similar relief for the year to persons receiving payments referred to in paragraph 81(1)(d) of the Act.

Paragraph 13 of 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, Australia 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) of the Act 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. It is our understanding that Australia exempts World War II related pensions and therefore, assuming you are referring to such pension, the payments meet the requirements listed above for paragraph 81(1)(e) to apply. We would need more information in order to provide you with an answer regarding the taxation of other Australian pensions.

We trust our comments are of assistance.

Olli Laurikainen CA
International Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch