2018-0781941E5 Foreign retirement plans (Ireland)

Principal Issues: Whether a Personal Retirement Savings Account or an Approved Retirement Fund established under the income tax law of Ireland is a pension plan, or an employee benefit plan, for the purposes of the Act.

Position: No.

Reasons: No employer contributions have been made to the PRSA or the ARF.

Author: Pietrow, Victor
Section: 56(1)(a); 248(1) "employee benefit plan"; 6(1)(g); Canada-Ireland Income Tax Convention

XXXXXXXXXX                                                                                                                                     V. Pietrow
                                                                                                                                                              2018-078194

July 03, 2019

Dear XXXXXXXXXX:

RE: Irish retirement plans

We are writing in response to your email of October 6, 2018, in which you sought our views in connection with the Canadian income tax treatment of Irish retirement plans.

We understand the facts to be as follows: You were previously resident in Ireland, during which time you participated in an Irish company pension plan.  Before returning to reside in Canada, you transferred funds from the Irish company pension plan to a Personal Retirement Savings Account (PRSA) established in accordance with the income tax law of Ireland. You are now planning to transfer the funds from the PRSA to an Approved Retirement Fund (ARF) established in accordance with the income tax law of Ireland.  No employer contributions were made to your PRSA and none would be made to your ARF.

You indicate that PRSAs and ARFs are tax-privileged individual investment vehicles that are similar to Canadian registered retirement saving plans and registered retirement income funds, respectively.

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.

As a resident of Canada, a taxpayer is taxable under the Act on their worldwide income.

In determining the Canadian tax treatment of a foreign retirement plan, one needs to consider whether the plan is a pension plan or an employee benefit plan (EBP) for the purposes of the Act.

Whether a plan is a pension plan is a question of fact. Generally, a plan will be considered to be a pension plan under the Act 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.

Whether a plan is an EBP is determined by reference to the definition of EBP in subsection 248(1) of the Act. In general terms, an EBP requires contributions to be made by an employer for the benefit of the employer’s employees or former employees.

If no employer contributions have been made to a foreign retirement plan, the plan will not be considered a pension plan, nor an EBP.  In accordance with Abrahamson v Minister of National Revenue, 91 DTC 213 (Tax Court of Canada), the fact that the original source of funds in a foreign individual retirement plan was a pension plan is not relevant.

A foreign pension plan would generally fall within the EBP definition, but a foreign EBP does not necessarily fall within the meaning of a pension plan.

If a foreign retirement plan is neither a pension plan nor an EBP, withdrawals from the plan would not be required to be included in the recipient’s income under paragraph 56(1)(a) of the Act as pension income nor under paragraph 6(1)(g) as an amount received out of an EBP. Nevertheless, any income or capital gain earned in connection with such a plan is generally taxable in Canada on a current, annual basis, the determination of which will depend on the characterization of the plan and its respective treatment under the Act. To the extent a taxpayer would be subject to tax in Ireland in connection with the plan, a foreign tax credit may be available. For information on eligibility for, and how to claim, a foreign tax credit, please refer to Income Tax Folio S5-F2-C1, Foreign Tax Credit. Note that nothing in the Canada-Ireland Income Tax Convention provides relief from Canadian tax in this situation.

Furthermore, a taxpayer may be required to file foreign reporting information returns T1135 Foreign Income Verification Statement, T1141 Information Return in Respect of Contributions to Non-Resident Trusts, Arrangements or Entities, T1142 Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust, and/or T1134 Information Return Relating to Controlled and Not-Controlled Foreign Affiliates, in respect of their retirement plan.

A tax advisor can, together with information from the plan issuer, assist you in determining the proper characterization and taxation of your PRSA or ARF and the filing and reporting requirements.

We trust that 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

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