16 January 1990 Ministerial Correspondence HAA4093N14 F - Canada-Netherlands Income Tax Convention - Pension of Public Employees

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.

19(1) Canada-Netherlands Tax Convention Article 18

We are writing in reply to your memorandum dated July 27, 1989, concerning the above-noted taxpayer.

It is our understanding that the Algemene Burgerlijke Pensioenwet ("ABP" - the General Pensions Act for Public Employees) was in existence long before the general disability schemes (the AAW and WAO) were enacted.  Benefits under the ABP are paid out of the Algemeen Burgerlijke Pensioenfonds (The General Pension Fund for Public Employees).  Public employees are covered by the AAW but payments are not made directly to such employees.  They are paid to the employees by the public employees' pension fund which is then reimbursed under the AAW.  This arrangement was put in place for funding purposes only.  Public employees are not covered under the WAO.  However, they receive the same disability benefits under the ABP as they would have if they were covered by the WAO.  We have not been advised that the WAO reimburses the public employees pension fund for disability payments in the same manner as the AAW does.

Based on the above, it is our opinion that payments received by 19(1) from the general pension fund for public employees in respect of a disability pension under AAW are received under the social security legislation of the Netherlands. 19(1)  is covered under AAW.  The fact that his benefits under the AAW are physically paid from the public employees fund which is then reimbursed by AAW would not disqualify the amounts as being received under the AAW.

The balance of his disability pension, which is equal to the amount he would have received from the WAO if he had been covered by that plan, is a disability pension paid in respect of his employment by a specific employer.  Therefore, in our view, it does not qualify as an amount received under the social security legislation of the Netherlands.

Our comments to the points raised in your memorandum are as follows:

1.     From information received from the Dutch Ministry of Finance, we were of the understanding that Dutch social security payments were those payments made under the General Old Age Pensions Act (AOW) and the Widow's and Orphans' Benefits Act (AWW).

     24(1)

2.     In addition to the AOW and AWW Acts, we are of the opinion that benefits received under the General Disability Benefits Act (AAW) are eligible as payments received under Dutch social security legislation.  Accordingly, these payments would be exempt from tax in Canada.

     We cannot determine at this time whether the Workman's Disability Benefits Act (WAO) forms part of the social security legislation of the Netherlands.  We have just received a list of the Netherlands "5" national insurance schemes and only the AAW is included.  Furthermore, the fact that the WAO only applies to certain employees (i.e. does not apply to public employees) may prevent it from qualifying as social security legislation.  We will be writing to the Dutch tax authorities to request clarification of this issue and others.  If the WAO is social security legislation, our comments on page 1 concerning 19(1) still apply.

     Generally, benefits received under the General Pensions Act for Public Employees (ABP) are not considered social security benefits.  However, where these benefits are disability related, are in respect of the AAW social security scheme and are reimbursed by the General Disability Fund, such amounts are payments received in accordance with the Netherlands social security legislation.  (As is the case with a portion of 19(1) benefits).

3.     We do not have sufficient information to make a determination as to whether all payments from the General Disability Fund are social security.  We are not clear as to the status of the WAO (see comment #2 above).  From the information supplied by 19(1) we are unable to determine if payments under WAO, in addition to payments under AAW, come from the General Disability Fund.

4.     Unfortunately, we are unable to provide a concise definition of "social security".  We have had disputes in the past over the meaning of the term but we are not aware of any jurisprudence on the issue.

We found the information supplied by 19(1) very useful.  We now have a better understanding of the Dutch social security system.  This should help us with future queries.  In the letter dated March 12, 1989, from the Netherlands to 19(1) a reference is made to a survey of Dutch social security schemes.  It would be appreciated if you could request a copy of this from 19(1) and forward it to us.

If you wish to discuss the matter further, please contact Jim Wilson of this office at (613) 957-2063.  We apologize for the delay in replying.

C. SavageA/DirectorProvincial and International Relations Division

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