2 December 2004 External T.I. 2004-0101881E5 - Pension Payment from UN Agency

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: 1. Whether a lump sum payment received by a Canadian resident from the World Bank pension is exempt from taxation in Canada?

2. If not, whether the amount can be transferred to a RRSP on a tax exempt basis?

Position: 1. A portion may be exempt.

2. No.

Reasons: 1. The payment must be included in income under subparagraph 56(1)(a)(i). A deduction is available under subparagraph 110(1)(f)(i) for treaty-exempt income to the extent that some or all of the pension payment would be excluded from taxable income in the country where the pension arise, if the taxpayer received the pension while resident of that country.

2. There is no provision under the Act for a tax free rollover to an RRSP under these circumstances.

XXXXXXXXXX  								2004-010188
C. Lalonde
December 2, 2004

Dear XXXXXXXXXX:

Re: Pension Income from UN Agency

This is in reply to your electronic message of November 5, 2004 and our subsequent telephone conversation (XXXXXXXXXX/Lalonde) wherein you requested our comments regarding the taxation under the Income Tax Act (the "Act") of a lump-sum pension payment you received when you left your employment with the XXXXXXXXXX ("World Bank") in XXXXXXXXXX. You stated that the pension plan in question is not a registered pension plan ("RPP") for the purposes of the Act. You also indicated that prior to your assignment with the World Bank, you obtained an opinion from our International Tax Services Office stating that you would be a deemed resident of Canada for the purposes of the Act while on assignment in XXXXXXXXXX.

Comments

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. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide the following general comments which may be of assistance.

Canadian residents are generally required to include in their income all amounts received as a "superannuation or pension benefit" pursuant to subparagraph 56(1)(a)(i) of the Act. Generally, a plan will be considered a superannuation or pension fund where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodic payments on or after the employee's retirement in consideration for his or her employment services.

Whether pension payments received are in the form of a lump sum payment or a periodic pension payment, or whether such payments include a return of premiums and/or an income element, such payments, in their entirety, would be required to be included in the taxpayer's income in the year they are received.

There are certain tax exemptions in Canada available to employees of certain international organizations. However, these exemptions are generally restricted to remuneration from employment and do not extend to pension income. Subparagraph 110(1)(f)(iii) of the Act provides for a deduction in the computation of taxable income with respect to "income from employment with prescribed international organizations". For the purposes of these rules, the "prescribed international organizations" include the United Nations and certain specialized agencies within the United Nations system, such as the World Bank.

The CRA would recognize any tax exemptions granted to the employees and officials of the World Bank pursuant to the Convention on the Privileges and Immunities of the United Nations ("Convention"). However, section 18 of Article V of the Convention only provides exemption from tax to those United Nations officials on the salaries and emoluments paid to them by the United Nations. We are not aware of any provision in the Convention that would exempt from Canadian tax pensions received from the United Nations.

However, an individual would be entitled to a deduction under subparagraph 110(1)(f)(i) for treaty-exempt income to the extent that some or all of a pension payment would be excluded from taxable income in the treaty country if the individual received the pension benefits while resident of that country. In order to determine which income tax convention may apply, you will need to determine from which country your pension benefits arose.

As an example, paragraph 1 of Article XVIII of the Canada-U.S. Income Tax Convention provides that any portion of a pension payment arising in the U.S. will be exempt from taxation in Canada, if that portion would not have to be included in the individual's U.S. taxable income if that individual was a resident of the U.S. Whether or not a pension "arises" in the U.S., and whether or not it would be included in the individual's U.S. taxable income if he was a resident there, are questions of fact.

In the alternative that the amount received from the pension plan is subject to tax in Canada, you enquired about the possibility of transferring the amount directly to a Registered Retirement Savings Plan (RRSP) on a tax exempt basis. In response, there is no provision under the Act which provides for a tax-free rollover to a RRSP under the above circumstances.

We trust the above comments will be of assistance to you.

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