2014-0553001E5 Self-funded UK Personal Pension Scheme

Principal Issues: Whether a lump sum withdrawal from a self-funded UK personal pension scheme by a resident of Canada is subject to tax in Canada?

Position: No.

Reasons: As the income earned or capital gains realized on investments held in a self-funded UK personal pension scheme by a resident of Canada would be subject to tax in Canada as it is earned or realized, as the case may be, withdrawals from the self-funded UK personal pension scheme would not be subject to tax in Canada at the time of the withdrawal.

Author: Chang, Jack Yu-Fan
Section: 3, 56(1)(a), 60(j), Articles 10, 11, 13 and 17 of the Canada-UK Treaty

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                                                                                                                                                           2014-055300
                                                                                                                                                           J. Chang
                                                                                                                                                           (416) 973-0022

May 15, 2015

Dear XXXXXXXXXX:

Re:   Self-funded UK Personal Pension Scheme

We are writing further to our phone call with you on May 12, 2015 and in response to your email of October 28, 2014 in which you requested our views concerning the Canadian income tax implications of a lump sum withdrawal by an individual resident in Canada from a self-funded personal pension scheme (“UK PPS”) established in the United Kingdom.  In particular, you requested our comments regarding whether the lump sum withdrawal would be subject to tax in Canada and, if so, whether there would be any relief available under the Canada-United Kingdom Tax Convention (the “Treaty”). 

It is our understanding that a UK PPS is a tax-privileged individual investment vehicle that is available to a resident of the United Kingdom and that it is treated much like a registered retirement savings plan under the Canadian income tax rules.  A resident of Canada may have a UK PPS if that person had previously been resident in the UK and had opened such an account at that time. 

For the purpose of our comments, it has been assumed that the UK PPS would not be a trust for Canadian income tax purposes.  This determination is a question of fact and beyond the scope of this interpretation.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings.

As we described in our previous letter to you dated September 24, 2014 (our document 2014-0543091E5), amounts received from a UK PPS would not be superannuation or pension benefits paid from a foreign pension plan for purposes of the Act and, therefore, no transfer of funds from the UK PPS would be eligible for a tax deferred transfer to an RRSP under subsection 60(j) of the Act. 

A resident of Canada is taxed in Canada on all sources of worldwide income, subject to the foreign tax credit.  As such, the income or loss earned or the capital gain or loss realized, as the case may, on investments held in a UK PPS by a resident of Canada would need to be reported in that resident person’s income for the taxation year in which the income or loss or capital gain or loss were earned or realized, respectively.   Moreover, generally, the Treaty would not preclude Canada from taxing the income or loss earned or the capital gain or loss realized, as the case may, on investments held in a UK PPS by a resident of Canada.  The application of the Treaty to the income or loss earned or the capital gain or loss realized on investments held in the UK PPS would be a determination of fact and this determination would be beyond the scope of this interpretation. 

Given that the income earned or the capital gain realized, as the case may be, on investments held in a UK PPS of a resident of Canada would be subject to tax in Canada as they are earned or realized, funds withdrawn from the UK PPS by a taxpayer resident in Canada would not be subject to tax in Canada at the time of the withdrawal. 

To the extent that the taxpayer would be subject to tax in the United Kingdom on income earned or capital gains realized on investments held in the UK PPS or on amounts withdrawn from the UK PPS, a foreign tax credit may be available on the taxpayer's Canadian tax return in connection with any taxes paid to the government of the United Kingdom.  For more information on claiming a foreign tax credit, please refer to Income Tax Folio S5-F2-C1, Foreign Tax Credit at
http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s5/f2/s5-f2-c1-eng.html

We trust that our comments will be of assistance. 

Yours truly,

Lori M. Carruthers CPA, CA
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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