21 June 2001 External T.I. 2001-0080855 - U.S. 403(b) 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: How are payments made out of a U.S. 403(b) pension plan to a Canadian resident beneficiary (not the employee who is deceased) taxed?

Position: The entire amount is included in income pursuant to 56(1)(a)(i)

Reasons: The entire amount is excluded pursuant to 6(1)(g)(iii) because the benefits are attributable to a non-resident rendering services in the U.S. Therefore, the exception in clause 56(1)(a)(i)(D) will not apply.

XXXXXXXXXX 							2000-008085

June 21, 2001

Dear XXXXXXXXXX:

Re. U.S. 403(b) plan

This is in reply to your letter of March 12, 2001 wherein you requested our views as to tax treatment of amounts received by a Canadian resident beneficiary of a U.S. 403(b) pension plan in respect of his deceased uncle's employment in the U.S.

The particular circumstances described in your letter appear to be a factual situation involving specific taxpayers. As explained in Information Circular 70-6R4 dated January 29, 2001, since your situation involves a specific taxpayer and completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we can offer the following general comments which may be of assistance.

For the purposes of the Income Tax Act ("Act"), the term "superannuation or pension benefit" is defined under subsection 248(1) of the Act to include any amount received out of a superannuation or pension plan and any payment made to a beneficiary under such a plan in accordance with the terms of the plan. A pension received by a resident of Canada out of an unregistered foreign superannuation or pension plan is subject to tax in the same way as a pension received from a source in Canada under subparagraph 56(1)(a)(i) unless exempted by clauses 56(1)( a)(i)(D) or (E) or the provisions of a tax treaty.

Although it is a question of fact whether a particular plan will be considered a retirement compensation arrangement or an employee benefit plan for Canadian income tax purposes, we generally consider a U.S. 403(b) plan to be an employee benefit plan within the meaning of subsection 248(1) of the Act and, therefore, clause 56(1)(a)(i)(D) may apply to exclude an amount that is required by paragraph 6(1)(g) of the Act to be included or would be required to so be included if that paragraph were read without reference to subparagraph 6(1)(g)(ii). Payments received by a Canadian resident beneficiary of such a plan are included in income pursuant to paragraph 6(1)(g) of the Act unless the exceptions in subparagraphs 6(1)(g)(i), (ii), or (iii) apply. Where the entire amount received would be excluded pursuant to subparagraph 6(1)(g)(iii) because the benefits are attributable to services while not a resident of Canada the exception provided for in clause 56(1)(a)(i)(D) would not apply.

With respect to your view that this result is inappropriate in policy terms, you may pursue this matter with the Department of Finance who has the responsibility for amendments to the Income Tax Act.

We trust that our comments will be of assistance.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch