3 June 1983 Income Tax Severed Letter

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.

DATE: June 3, 1983

To- C.J. Muirhead Chief Non-Residents/Business and Property Income

FROM- D.S. Delorey

RE: Article XVII Canada-U.K. Tax Convention (1978)

I agree that the subject Article can be interpreted in a manner such that the $10,000 exemption figure would include CPP and OAS payments, since these payments are without doubt "pensions". However, it is my view that exempting articles of a convention should be considered to apply to amounts that are otherwise taxable; i.e., one looks to a convention as a last resort. Consequently, I would interpret Article XVII of the U.K. treaty in a manner such that the $10,000 exemption would apply to pensions otherwise required to be included in income. Since the courts give effect to intent in interpreting provisions of a treaty and since Finance have indicated that it was intended to exempt $10,000 plus CPP and OAS payments, I fail to see why we cannot interpret the provision to give effect to the stated intent, unless of course we wish for some reason to take the hard line.

I agree with Jean Marc Déry that a U.K. resident could effectively obtain an exemption in excess of $18,000 by filing under section 217. Pursuant to that section, the U.K. resident would include in income, for purposes of determining his Part I tax liability, all the payments referred to therein including, because of the wording in the last two lines of 217(b)(i), CPP and OAS payments. He then looks to Article XVII to exclude $10,000 and their proceeds to claim personal exemptions pursuant to subparagraph 217(b)(ii). Consequently, his total exempt income would depend upon the personal exemptions to which he is entitled.

If my rationale set out in the first paragraph is accepted, there of course would be a problem if Finance decides at some future time to tax non-residents per se on CPP and OAS payments, in that a U.K. resident would be exempt from Part XIII tax on only a total of $10,000, whereas if he elects under section 217, he would be entitled to an exemption of $10,000 plus his personal exemptions.

Conclusion

In view of my comments in the preceding paragraph, it would seem preferable if in Article XVII of the U.K. treaty, it specifically stated that the $10,000 was in addition to CPP and OAS payments. This could also be achieved by defining "pensions" to exclude receipts otherwise not taxable in the source country.