3 June 2004 External T.I. 2004-0074801E5 - Contributions to U.K. Pension Plan

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: A Canadian resident originally from the U.K. is allowed to make additional contributions to the U.K. Pension Department in order to increase the pension he will receive from the U.K. when he reaches 65 years of age. Can he deduct these additional contributions in computing his Canadian income taxes?

Position: No.

Reasons: There is no provision under the Act that provides for a deduction. Furthermore, there is no relief provided under the Canada-U.K. Convention currently in effect.

XXXXXXXXXX  								2004-007480
C. Lalonde
June 3, 2004

Dear XXXXXXXXXX:

Re: Tax deductibility of a pension contribution

This is in response to your letter dated May 7, 2004, wherein you enquired about the deductibility for Canadian tax purposes of a lump sum contribution you made with respect to your United Kingdom (U.K.) pension in order to increase your U.K. pension benefit entitlements at age 65.

You have been a resident of Canada since XXXXXXXXXX. In order to increase your pension entitlements, you were required in XXXXXXXXXX to make a lump sum contribution to the U.K. You believe that the contribution you made should be deductible because the pension benefits you are now receiving on a monthly basis are being taxed in Canada while you remain a resident of Canada.

Comments

In your letter you have outlined what is an actual fact situation related to proposed transactions. As noted in Information Circular 70-6R5 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide an opinion concerning the tax consequences associated with specific proposed transactions in the form of an advance income tax rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. Consequently, we can only provide you with the following general comments.

Contributions to a pension plan are generally deductible in computing income if the pension plan has been registered by the Canada Revenue Agency for the purposes of the Income Tax Act (the "Act"). Also, a deduction from Canadian federal income taxes otherwise payable is available for contributions made to the Canada Pension Plan.

However, there is no deduction available under the Act for contributions made to a U.K. (foreign) pension plan or U.K. (foreign) government social security arrangement. Nevertheless, you will be required to include in computing your income for Canadian tax purposes all amounts you receive under such a U.K. plan. This is because, as a Canadian resident, you are taxable on your world income. The Canada-U.K. Income Tax Convention (1978) does not provide any relief in this regard.

We trust that these comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch