2015-0588521E5 Widowed Parent's Allowance

Principal Issues: 1. Is the Widowed Parent's Allowance taxable in Canada? 2. Is a lump-sum amount received from a UK private pension scheme taxable in Canada? 3. Are there any treaty benefits or exemptions that would apply so as to reduce the tax payable?

Position: An amount received as a superannuation or pension benefit is included in income pursuant to subparagraph 56(1)(a)(i) of the Act. The amount would be included in income by the taxpayer who is legally entitled to receive and is paid the respective amount. The Canada-U.K. Income Tax Convention (the "Treaty") does not prevent Canada from taxing pension receipts.

Reasons: Subparagraph 56(1)(a)(i) and Article 17 of the Treaty.

Author: Skulski, Katharine
Section: 56(1)(a) and 248(1)

XXXXXXXXXX
                                                                        2015-058852
                                                                        Katharine Skulski

March 21, 2016

Dear XXXXXXXXXX:

Re:  Widowed Parent’s Allowance

We are writing in response to your letter dated May 8, 2015 as well as our telephone conversation (Skulski/XXXXXXXXXX) of September 23, 2015, in which you asked for our comments with regard to whether the United Kingdom (“UK”) Widowed Parent’s Allowance (the “Allowance”) is taxable in Canada.  We apologize for the delay in our response.

Based on the information described in your letter, as well as the information attached to it, you explained that your late husband had contributed to the XXXXXXXXXX in the UK.  At the time of his death, he was resident in Canada, and together you had one child.  After your husband’s death, you began to receive the Allowance.  It is our understanding that, the Allowance is a set amount that is payable as long as you have living with you a child or young person, under the age of 20, who is in non-advanced full-time education.  The Allowance is not a means or income tested amount.  The information you provided to us also indicates that the Allowance is taxable in the UK.  However, since the amount received is within the personal allowance for UK income tax purposes, you have explained that you do not pay any UK income tax on the amount received.

You have asked that we clarify the following questions:

1.    Is the Allowance taxable in Canada?
2.    If the Allowance is taxable, is it to be reported by you or your daughter?
3.    Are there any treaty benefits or exemptions that would apply to the Allowance so as to reduce the tax payable?

You have also requested our comments as to whether a lump-sum amount received from a UK private pension scheme is taxable in Canada. You advised us that this private pension scheme was related to your husband’s previous employment in the UK.  You further advised us that while you received the lump-sum amount, your daughter was listed as the sole beneficiary under this private pension scheme. You ask whether such lump-sum amount would be considered a death benefit under the Income Tax Act (the “Act”) eligible for the $10,000 exemption.

Our comments

This technical interpretation provides general comments about the provisions of the Act, 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 and Technical Interpretations.

Canadian residents are generally required to include in their income all amounts received as a superannuation or pension benefit, pursuant to subparagraph 56(1)(a)(i) of the Act. A "superannuation or pension benefit" is defined to include any amount received, including any lump-sum payment, out of or under a superannuation or pension fund or plan. Subparagraph 56(1)(a)(i) of the Act also applies to benefits from a foreign pension plan unless the amount is exempted by the provisions of a tax treaty.

The Act does not define the terms superannuation or pension plan. However, as supported by court decisions, the CRA’s general position is that a plan will generally 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. A superannuation or pension benefit would also include a periodic payment by a government to persons above a specific age (i.e., old-age pension) or disabled or widowed.

The Canada-U.K. Income Tax Convention (the "Treaty") does not prevent Canada from taxing pension receipts.  Paragraph 1 of Article 17 of the Treaty provides that periodic pension payments arising in the UK and paid to a resident of Canada shall be taxable only in Canada.  Paragraph 3 of Article 17 broadly defines the term "pension" to include any payment under a superannuation, pension or retirement plan, as well as any payment made under the social security legislation in the UK.

It is a question of fact as to whether a particular UK pension scheme is a superannuation or pension fund or plan under the Act.  Where the particular pension scheme is a superannuation or pension fund or plan, the person legally entitled to receive amounts under the plan is required to include such amounts in the taxpayer’s income in the year received, in accordance with subparagraph 56(1)(a)(i) of the Act.

In your letter, you refer to a “death benefit”.  The Act defines the term “death benefit” as “the total of all amounts received by a taxpayer in a taxation year on or after the death of an employee in recognition of the employee`s service in an office or employment”.  Furthermore, the definition of the term “death benefit” provides for an exclusion from income for up to $10,000 of the gross amount of death benefits attributable to a deceased taxpayer’s service in an office or employment. However, it should be noted that a payment received out of a superannuation or pension fund or plan is not considered a “death benefit”.  Interpretation Bulletin IT-508, Death Benefits contains further information in this regard.

We trust that these comments are of assistance.

Yours truly,

Bob Naufal
Manager
Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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