27 January 2011 External T.I. 2010-0385371E5 - Foreign retirement income

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.

Principal Issues: 1. Is the foreign retirement income subject to tax under subparagraph 56(1)(a)(i) of the Act?

Position: Question of Fact.

Reasons: The foreign retirement plan as described is akin to a mutual fund. Only payments received out of a superannuation or pension plan are subject to tax under subparagraph 56(1)(a)(i). A detailed review of the plan and plan contract would need to be undertaken before a definitive response could be given.

XXXXXXXXXX
									2010-038537
									P. Waugh

January 27, 2011

Dear XXXXXXXXXX :

Re: Canadian Tax Status of New Zealand Private Sector Investment

I am writing in response to your letter of October 25, 2010 concerning the taxation of a New Zealand personal retirement plan (the "Plan"). More specifically, you have enquired whether income from the Plan would be taxed under paragraph 56(1)(a) of the Income Tax Act (the "Act") and whether there is an offsetting deduction.

In the situation you described, a New Zealand couple living in New Zealand opened a joint Plan with AMP. The Plan is not tied to either of the individual's employment in New Zealand (e.g., the employer did not make any contributions into the Plan). Contributions into the Plan are from after tax dollars and the contributions are not tax deductible. The Plan is similar to a mutual fund. Any income earned in the Plan is taxed and income is distributed to members based on the unit price that day. For New Zealand income tax purposes, distributions to members are taxed as capital. The couple became Canadian residents in May 2010 and continue to make contributions into the Plan. At a future date, the couple will withdraw funds from the Plan either as a lump-sum or in regular payments.

Our Comments

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

Canadian residents are taxed on their worldwide income. This includes all amounts received as a "superannuation or pension benefit" pursuant to subparagraph 56(1)(a)(i) of the Act, whether received as periodic pension payments or as a lump sum. A "superannuation or pension benefit" includes any amount received out of or under a superannuation or pension fund or plan. Generally, a plan will be considered a superannuation or pension fund or plan where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodic payments on or after the employee's retirement in consideration for his or her employment services.

It is a question of fact whether amounts received out of the Plan would be superannuation or pension benefits and included in income pursuant to subparagraph 56(1)(a)(i) of the Act. Based on the limited information provided concerning the Plan, it appears that payments out of the Plan may not be considered a payment from a superannuation or pension benefit. However, a definitive determination could only be made after a review of the terms of the Plan and the Plan contract.

Any income earned or capital received from the Plan may be taxed in Canada. Any New Zealand tax paid on the income earned or capital received from the Plan may be subject to possible relief under the Canada-New Zealand Income Tax Convention (1980).

Any amounts received in a foreign currency which are taxable in Canada should be converted to Canadian currency using the exchange rate in effect at the time the amount is received. Where foreign taxes are withheld from investment income, for Canadian income tax purposes, the taxes are considered to be non-business taxes paid to the foreign country. Consequently, an individual may be entitled to claim a foreign tax credit with respect to the foreign taxes withheld. For additional details on the foreign tax credit rules, please refer to Interpretation Bulletin IT-270R3, Foreign Tax Credit or contact our International Tax Services (1-800-267-5177) which handles questions regarding the application of our foreign tax credit rules.

We trust these comments will be of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch