17 April 2000 External T.I. 2000-0016635 - PENSION OR ANNUITY PAYMENT FROM AUSTRALIA

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 allocated annuity/pension payments from Australia taxed in Canada

Position: Question of Fact

Reasons: A very general letter was written giving a general overview of taxation in Canada with a request for additional information so that an accurate determination as to the nature of the income can be made.

XXXXXXXXXX 						2000-001663
M. P. Baldwin

April 17, 2000

Dear XXXXXXXXXX:

Re: Treatment of a Superannuation Income stream
paid from Australia to a resident in Canada

This is in reply to your facsimiles of February 5, 2000 and October 6, 1999 in which you request a ruling or opinion on the tax treatment of an allocated annuity when paid to a Canadian resident from an Australian plan. In particular you would like to know if a portion of this allocated annuity would be exempt from tax in Canada.

It appears that the fact situation in your facsimile relates to a proposed transaction to be undertaken by a specific taxpayer and therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency ("CCRA" - formerly Revenue Canada) (copy enclosed). Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling, a written request can be submitted in accordance with the Information Circular. Nevertheless, we can provide you the following general comments which are not binding on the CCRA.

As a resident of Canada you are required to file an income tax return and report your income from all sources, both inside and outside Canada.

As noted in paragraph 4 of IT-499R ( copy enclosed) any amount received out of a superannuation or pension fund is income whether it is in the nature of a single payment or otherwise. This is so even if contributions to a particular fund or plan were not deductible for tax purposes. A superannuation or pension benefit includes any amount received out of or under a superannuation or pension fund or plan.

There is no definition of pension or annuity contained in the Canada - Australia Income Tax Convention (the "Treaty"). Pursuant to Article 18 of the Treaty "pensions and annuities in a Contracting State (i.e., Australia) for the benefit of and paid to a resident of the other Contracting State (i.e., Canada) may be taxed in that other State (i.e., Canada)." There is no provision in Article 18 which states that if income would be considered to be tax exempt in the contracting state then it would be considered to be exempt in the other state. Therefore, in order to determine how the income is taxed in Canada, a determination as to what type of income it is for Canadian tax purposes will have to be made. For instance, in your particular situation we would have to look at the nature of the payment from the allocated annuity or pension and determine whether it is considered to be pension income, annuity income or some other type of income. This determination will be based on the terms of your superannuation plan and allocated annuity.

To be considered a pension or superannuation payment for Canadian purposes, the payment has to be paid out of or under a superannuation or pension fund or plan. The Income Tax Act of Canada (the "Act"), however, does not define what a superannuation or pension fund or plan is and the courts have generally found that a plan will not be a superannuation or pension plan where only the beneficiary of the plan has made contributions to it. In particular the courts have frequently cited the 4th definition of pension as set out in the Shorter Oxford English Dictionary. The definition of pension that a pension is:

"4. An annuity or other periodical payment made, esp. by a government, a company, or an employer of labour, in consideration of past services."

It is our understanding, from the very limited information we were able to obtain, that an allocated annuity is like a personal pension plan that lets the individual invest any of their accessible superannuation or rollover money and provides the individual with a regular and flexible income. Individuals that are either self-employed or employees can contribute to the plans and that the level of tax in Australia depends on the type of withdrawal and whether benefits were accrued before or after 1983.

In order for us to be able to accurately determine the tax consequence of the allocated annuity payment in Canada, we require additional information on your particular plan, the terms and details of your plan and a breakdown of the contributions to your plan. We would also need any additional information that you think would be helpful in the determination of what the income is for Canadian tax purposes.

We trust that these comments will be of assistance to you.

Yours truly,

P. Spice
for Director
Deferred Income Plans Section
Financial Industries Division
Income Tax Rulings Directorate