2016-0640281E5 UK pension transfer to XXXXXXXXXX PPS

Principal Issues: 1. What are the tax consequences where a Canadian resident taxpayer transfers property from a UK pension to a personal pension scheme (PPS) in XXXXXXXXXX? 2. How will payments from a XXXXXXXXXX PPS to a Canadian resident be taxed?

Position: 1. No provision in ITA permitting a tax deferred transfer from a UK pension to a XXXXXXXXXX PPS. 2. Question of fact, which will depend on whether the XXXXXXXXXX PPS is structured as a trust, insured or deposit type arrangement.

Reasons: Provided general information as we do not have the documentation required to determine what type of arrangement the XXXXXXXXXX PPS is.

Author: Allen, Gary
Section: 56(1)(a), 60(j)(i)

XXXXXXXXXX                                                                                                                          2016-064028
                                                                                                                                                  G. Allen
January 4, 2017

Dear XXXXXXXXXX:

Re:  Transfer from UK Pension to XXXXXXXXXX Personal Pension Scheme (PPS)

This letter is in reply to the questions posed in your November 28, 2016 email and further to your email exchanges and telephone conversations (XXXXXXXXXX/Allen) concerning the transfer of funds from a UK pension scheme, either occupational or personal, to a XXXXXXXXXX PPS on behalf of a Canadian resident.

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)70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Our Comments:

There is no provision in the Act that provides for a tax deferred transfer of property, on behalf of a Canadian resident taxpayer, from a UK pension scheme, either occupational or personal, to a XXXXXXXXXX PPS.  A Canadian resident is subject to income tax on the resident’s world-wide income.

An amount received by a taxpayer out of or under a superannuation or pension plan is considered to be a superannuation or pension benefit. The term superannuation or pension benefit is defined in subsection 248(1) to include, inter alia, any amount received out of or under a superannuation or pension fund or plan. The determination of whether a plan is a superannuation or pension plan is a question of fact.  Generally, a plan will be considered to be a superannuation or pension 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 to be used to provide an annuity or other periodic payment on or after the employee's retirement. The amount of a pension benefit received, or constructively received, by a Canadian resident taxpayer must be included in income pursuant to subparagraph 56(1)(a)(i) in the year of receipt.  For the Canada Revenue Agency’s views concerning constructive receipt, please refer to paragraph 10 of IT-502 at http://www.cra-arc.gc.ca/E/pub/tp/it502/it502-e.html. Subject to the comments above, payments from a UK occupational pension scheme would likely be pension benefits for purposes of the Act and included in a taxpayer’s income in accordance with subparagraph 56(1)(a)(i).

Where an amount a taxpayer is entitled to receive is not actually paid to a taxpayer, subsection 56(2) of the Act may apply.  In general, subsection 56(2) provides, inter alia, that a payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer shall be included in computing the taxpayer's income to the extent that it would be if the payment or transfer had been made to the taxpayer.  For more information concerning the application of subsection 56(2) please refer to IT-335R2, Indirect Payments at http://www.cra-arc.gc.ca/E/pub/tp/it335r2/README.html.

The determination of which provision of the Act would apply to payments made to a Canadian resident taxpayer from a UK PPS is a question of fact.  This determination would depend on whether the UK PPS was structured as a trust, insured or deposit type arrangement and would require a review of the appropriate documentation containing the terms of the UK PPS.

As mentioned in our November 4, 2016 email, a tax deferred transfer of property from a foreign pension plan to a registered retirement savings plan (RRSP) is permitted where the conditions specified in subparagraph 60(j)(i) are satisfied.  One of these conditions is that the transfer must be a lump sum (i.e. not part of a series of periodic payments) superannuation or pension benefit that is transferred from a non-registered pension plan. For more information concerning transfers from non-registered pension plans to RRSPs please refer to paragraph 26 of IT-528 at http://www.cra-arc.gc.ca/E/pub/tp/it528/README.html.

A self-funded XXXXXXXXXX PPS would not be considered a superannuation or pension plan where contributions are not made to the XXXXXXXXXX PPS by or on behalf of an employer of the beneficiary of the XXXXXXXXXX PPS in consideration for services rendered by the beneficiary.  Accordingly, any payments received from the XXXXXXXXXX PPS by the beneficiary would not be considered amounts received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act and thus, not included in income pursuant to paragraph 56(1)(a).  The tax treatment of payments made to a Canadian resident from a XXXXXXXXXX PPS would depend on whether the PPS was structured as a trust, insured or deposit type arrangement.  This determination would require a review of the documentation that contains the terms of the XXXXXXXXXX PPS.

Your question concerning the appropriate rate of withholding tax that would apply under Article XXXXXXXXXX of the Canada-XXXXXXXXXX Income Tax Convention to payments from a XXXXXXXXXX PPS to a Canadian resident should be referred to the XXXXXXXXXX tax authorities.

When a Canadian resident taxpayer is subject to tax in XXXXXXXXXX on amounts withdrawn from a PPS, in general, a foreign tax credit may be available on the taxpayer's Canadian tax return in connection with any taxes paid to the government of XXXXXXXXXX.  The foreign tax credit will reduce or eliminate the potential for double taxation of such income.  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 to you.

Yours truly,

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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