15 May 1995 External T.I. 9503725 - LUMP SUM FROM U.K. PENSION PLAN

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:

	Whether lump sum pension payment from U.K. subject to 	Canadian tax.

Position TAKEN:

Yes

Reasons FOR POSITION TAKEN:

	Routine - also live tax situation so general remarks 	only.

XXXXXXXXXX 950372

May 15, 1995

Dear XXXXXXXXXX:

Re: Lump Sum Pension Payment

This is in reply to your letter of February 2, 1995, in which you ask why a lump sum payment from a U.K. pension plan received in or after July 1994 is subject to income tax under the Income Tax Act (Canada) (the "Act") and not exempt from taxation under the Canada-United Kingdom Income Tax Convention (the "Convention").

Questions concerning your personal tax situation should be addressed to your local tax services office. You advise that you have been informed by that office that the lump sum is taxable but you request a written response. A written response explaining the Department's position can be obtained from the Victoria tax services office.

Although we cannot address your particular situation, we can offer the following general comments which are not binding on the Department.

A resident of Canada is subject to income tax on all pension and superannuation benefits received in the year. The taxing provision which applies depends on where the individual was resident in the period when the services were rendered to which the pension benefits relate. If an individual were rendering services while resident in another country and accrued pension benefits under a foreign pension plan in respect of those services, the foreign pension plan is considered an "employee benefit plan" (EBP). A lump sum payment out of an EBP is subject to tax under paragraph 6(1)(g) of the Act but an amount attributable to the period when the recipient was not a Canadian resident is excluded from tax under subparagraph 6(1)(g)(iii) of the Act and taxed under subparagraph 56(1)(a)(i) of the Act.

The Convention was concluded, in part, to avoid double taxation. It determines which of the two countries has the right to tax an amount which arises in one country and is received by a taxpayer who resides in the other country. You advise that the lump sum payment was not subject to tax in the U.K. and, therefore, the Convention is inapplicable.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch