4 July 1986 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.

XXXX

K. Harding Tel.: 957-2088

Dear Sirs:

This is in response to the queries set out in a photocopy of a letter from XXXX of the United Kingdom which you forwarded to this Department for comments.

As you are aware prior to April 6, 1986 pension payments arising in Canada and paid to a resident of the United Kingdom were subject to withholding tax in Canada. However, the Convention limited the withholding tax in Canada to 25 percent of the excess of all pension and annuity income in excess of the greater of $10,000 Canadian or £5,000 sterling. Therefore, those U.K. residents receiving pension and annuity payments from Canada, which in total amounted to less than the threshold amount, would be exempt from Canadian withholding tax.

For those U.K. residents whose income was in excess of the above limits and subject to Canadian withholding tax, they would be in a position to file an election under section 217 of the Canadian Income Tax Act. The election would generally benefit those U.K. residents whose effective personal rates in Canada would be less than the withholding rates in this country. We are attaching a copy of IT-163R2 which explains the election.

In his letter, XXXX was concerned that the St. John District Office was recovering tax from superannuation residents in the United Kingdom with respect to the years 1982 to 1965 inclusive.

We have reviewed the situation and have determined that the Department of Supply and Services, Superannuation Division in Shediac, N.B., failed to withhold tax on pension payments made to individuals outside Canada. The Saint John District Office commenced their review in 1984 and as a result of delays incurred in obtaining information from the payer they were delayed in notifying the affected annuitants.

A copy of a draft letter which was sent to the affected superannuates is attached and provides a full explanation of the problem and details concerning an extension of time for the superannuates to file the 217 election.

A Second Protocol to the Convention was ratified on December 23, 1985 and made a basic change to the treatment of pension income. The Protocol now provides that periodic pension payments arising in Canada and paid to a resident of the United Kingdom, who is the beneficial owner thereof, shall be taxable only in the United Kingdom and vice versa for residents of Canada. However, lump sum payments made under such plans will continue to be subject to 25 percent withholding tax in Canada.

The Protocol is effective with respect to pension payments on amounts paid on or after April 6, 1986. We are enclosing a copy of the Protocol to the Convention for your perusal.

We trust this is adequate for your purposes.

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch