2018-0747781E5 Australian Self-managed Super Fund

Principal Issues: What is the character of an Australian Self-managed Super Fund for Canadian income tax purposes? 2. What are the income tax implications to a Canadian resident for amounts received out of the arrangement?

Position: 1. The arrangement is a pension plan for purposes of the Act. 2. The payments are included in income under subparagraph 56(1)(a)(i) in the year they are received.

Reasons: 1. The plan meets the conditions accepted by the CRA and the courts to be considered a pension plan. 2. Subject to certain inapplicable exceptions, subparagraph 56(1)(a)(i) captures all amounts received from a pension plan.

Author: Podor, Karina
Section: 56(1)(a); 60(j); 248(1) definition of "superannuation or pension benefit"

XXXXXXXXXX                                                                            2018-074778
                                                                                                    K. Podor
June 24, 2020

Dear XXXXXXXXXX:

Re:   Australian Self-managed Super Fund

This is in reply to your correspondence of March 9, 2018, in which you requested our views concerning the Canadian income tax treatment of an Australian superannuation fund in the following situation. We apologize for the delay in our reply.

1.    The taxpayer is an individual who was previously a resident of Australia.

2.    While the taxpayer resided in Australia, she and her now ex-husband created an Australian Self-managed Super Fund (“SMSF”). An SMSF is a type of Australian superannuation fund. It is regulated by the Australian Taxation Office and is operated solely for the purpose of providing retirement benefits for the members or their dependants.

3.    The taxpayer and her ex-husband were the original members of the SMSF.

4.    The sole trustee of the SMSF is an Australian proprietary corporation of which the taxpayer and her son, who is a resident of Australia, are the only directors. The taxpayer’s son exercises central management and control of the SMSF trustee.

5.    The taxpayer immigrated to Canada several years ago and is currently a resident of Canada.

6.    Prior to immigration, contributions to the SMSF were made by:

a.    the taxpayer, as both concessional (i.e., pre-tax) and non-concessional (i.e. after-tax) contributions pursuant to Australian income tax law;

b.    the taxpayer’s ex-husband, as both concessional and non-concessional contributions; and

c.    the employer of the taxpayer’s ex-husband as concessional contributions.

7.    As part of the taxpayer’s divorce settlement, the taxpayer’s ex-husband received a portion of the SMSF assets and relinquished any further interest in the SMSF, such that the taxpayer is now the sole beneficiary of the SMSF.

8.    Under Australian law, the income of the SMSF was subject to tax at a flat rate of 15%, or 10% in the case of long-term capital gains, and all benefits paid to the taxpayer are tax-free due to the taxpayer’s age.

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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

A superannuation or pension benefit (“pension benefit”) is defined in subsection 248(1) (footnote 1) as including any amount received out of or under a superannuation or pension fund or plan (“pension plan”).

The term pension plan is not defined in the Act. The determination of whether a plan is a pension plan is a question of fact. A plan can be a pension plan for purposes of the Act regardless of whether it is registered under the Act and regardless of whether it is established inside Canada or outside Canada. Generally, a pension plan exists 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 payment on or after the employee’s retirement.

Subject to certain exceptions that are not relevant to your query, any amount (whether periodic or lump sum) received as, on account or in lieu of payment of, or in satisfaction of, a pension benefit is included under subparagraph 56(1)(a)(i) in income of the recipient in the year it is received. The full portion of the amount will be included under subparagraph 56(1)(a)(i) even if the employee’s contributions to the pension plan were not deductible under the Act and even if the pension benefits are tax-free in whole or in part in a foreign jurisdiction.

Based on the fact that contributions were made to the SMSF by an employer of the taxpayer’s ex-husband in consideration for his employment services and that the sole purpose of the SMSF is to provide retirement benefits to its members, it is reasonable to conclude that the SMSF is a pension plan for purposes of the Act. The fact that the taxpayer’s ex-husband previously received a portion of the SMSF assets in full satisfaction of his interest in the SMSF would not cause the plan to cease to be a pension plan for purposes of the Act. Accordingly, any payments received out of or under the SMSF by the taxpayer would be included in her income under subparagraph 56(1)(a)(i) in the year of receipt. It is not relevant that some contributions made to SMSF by the taxpayer were not deductible, or that the benefits are not taxable, under Australian income tax law.

You indicate that the taxpayer is contemplating a transfer from the SMSF to her registered retirement savings plan (“RRSP”). If certain conditions are met, paragraph 60(j) allows for a tax-deferred transfer of a pension benefit (that is not part of a series of periodic payments) from an unregistered pension plan to an RRSP. For more information, see paragraph 26 of Interpretation Bulletin IT-528, Transfers of Funds Between Registered Plans.

We do not have sufficient information to respond to your questions about the non-resident trust rules in section 94 and the foreign property reporting rules in section 233.3.

We trust these comments will be of assistance.

Yours truly,

Dave Wurtele
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  All references are to the Income Tax Act unless stated otherwise.

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