8 March 1984 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.

Provincial and International Relations Division Legislation Branch E.O. 800952

March 8, 1984

Mr. Stan Darling, M.P. House of Commons Ottawa, Ontario K1A 0A5

Dear Mr. Darling:

Thank you for your letter of February 1 and the enclosed copy of a letter you received from XXXXXXXX concerning taxes paid on an army pension and investment income he receives from the United Kingdom.

XXXX letter indicates that he is a Canadian resident and citizen and receives an army pension from the United Kingdom. He expresses concern that he is required to pay more taxes than other Canadians in the same bracket because a portion of his income is sourced in the United Kingdom. He also states that since the present Canada-United Kingdom Income Tax Convention entered into force, he is taxed in both countries on his world income.

Pursuant to Article XVII of the Canada-United Kingdom Income Tax Convention, the United Kingdom maintains the right to tax public pensions. It is our understanding that the United Kingdom withholds 30 per cent tax on the gross amount of the pension payments made to a resident of Canada. However where the taxpayer elects for relief to the United Kingdom under Section 27 of their Income and Corporation Taxes Act, 1970, the 30 per cent withholding rate may be reduced to a lesser amount. In the determination of the amount of the relief provided under Section 27, the taxpayer is required to provide the United Kingdom with details of this world income to make that determination but XXXX is not taxed on his world income in the United Kingdom.

The Canadian Income Tax Act and the Canada-United Kingdom Income Tax Convention provides for a deduction from Canadian taxes in respect of income taxes paid to a country other than Canada. This deduction (foreign tax credit) is restricted to the lesser of:

a) the income tax paid for the year to a foreign government, and

b) Canadian taxes otherwise payable for the year on the foreign income

I have received XXXX 1982 income tax return and determined that his foreign tax paid to

XXXX. Since the foreign tax credit is limited to the amount of Canadian taxes he is required to pay on the foreign-sourced income, it is necessary to determine the amount of Canadian taxes paid on XXXX pension and investment income received from the United Kingdom.

XXXX The attached schedules prepared from information on XXXX 1982 return clearly indicate that the XXXX taxes pay by XXXX represents the tax owing on his Canadian-sourced income and does not represent tax on his foreign-sourced income.

It is standard practice in most countries to restrict the deduction of foreign tax credits to the amount of domestic tax paid on the foreign-sourced income. If Mr. Seaton objects to this principle, he should write outlining his position to the Minister of Finance, the Honourable Marc Lalonde, who has the responsibility for making amendments to the Canadian Income Tax Act.

I trust the above comments will enable you to adequately reply to

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