2019-0824281E5 Benefits from a UK retirement plan

Principal Issues: Whether amounts received by a resident of Canada from a UK retirement plan where the employer makes contributions to the plan which are attributable to services rendered by the individual while resident in the UK, would be included in the income of the individual for Canadian tax purposes?

Position: Generally, yes.

Reasons: Where the plan is determined to be a pension, the amounts would be included in income pursuant to subparagraph 56(1)(a)(i), subject to certain criteria. If the plan is not a pension, the amounts would be included in income pursuant to paragraph 6(1)(g).

Author: Doiron, Wayne
Section: 56(1)(a)(i), 6(1)(g), 60(j), 110(1)(f)(i), 248(1) "employee benefit plan", 248(1) "foreign retirement arrangement", 6(1)(h), 94

XXXXXXXXXX                                                                                           2019-082428
                                                                                                                   W. Doiron
September 11, 2020

Dear XXXXXXXXXX:

Re: Taxation of UK retirement plans

This is in reply to your letter of September 23, 2019 in which you inquire whether amounts received by a resident of Canada (“Taxpayer”) from a Funded Unapproved Retirement Benefit Scheme (“FURBS”) established in the United Kingdom (“UK”) would be included in the income of the Taxpayer under the Income Tax Act (footnote 1). We apologize for the delay in our response.

We understand the facts in your hypothetical scenario to be as follows:

*    The Taxpayer is currently a resident of the UK and is considering becoming a resident of Canada.
*    The Taxpayer is retired and a member of a FURBS.
*    The FURBS is a trust resident in the UK and is administered by a third party investment advisor or bank located in the UK.
*    The employer of the Taxpayer made contributions to the FURBS.
*    The benefits from the FURBS are attributable to services rendered by the Taxpayer while resident in the UK.

Our comments

This technical interpretation provides general comments about the provisions of 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.

While your question is specific to amounts received from a FURBS, the following comments could apply to any UK retirement plan where the employer makes contributions to the plan which are attributable to employment services rendered while the individual was resident in the UK.

As a resident of Canada, you are taxable in Canada on your worldwide income.  Any amounts received from a UK retirement plan would be included in your income pursuant to subparagraph 56(1)(a)(i) or paragraph 6(1)(g).

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

An EBP is defined in subsection 248(1). In general terms, an EBP is any arrangement under which the employer or someone not dealing at arm's length with the employer makes contributions to another person and under which one or more payments are to be made to or for the benefit of employees, former employees or persons with whom the employees and former employees do not deal at arm's length.

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 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.

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 it is determined that the UK retirement plan is an EBP, the amounts received from the plan would be taxable under paragraph 6(1)(g), subject to certain exceptions.  One of those exceptions is where the plan is determined to be a pension plan and the benefits received out of the plan are attributable to services rendered by a person in a period throughout which the person was not resident in Canada. In that case, the amounts received from the plan would be taxable under subparagraph 56(1)(a)(i).

You made a reference that you thought that clause 56(1)(a)(i)(C.1) should apply in this case.  Clause 56(1)(a)(i)(C.1) requires that payments received by a taxpayer from a “foreign retirement arrangement” be included in their income, except to the extent the amount would not be subject to income tax under the laws of the country under which it is established if the taxpayer were resident in that country. A "foreign retirement arrangement" is defined under subsection 248(1) to be a plan or arrangement as prescribed by the Income Tax Regulations ("Regulations").  Section 6803 of the Regulations presently only prescribes those plans or arrangements to which subsections 408(a), (b) or (h) of the United States Internal Revenue Code applies.  As a result, a UK retirement plan would not meet the definition of a "foreign retirement arrangement" and clause 56(1)(a)(i)(C.1) would not apply.

Where the amount received out of the UK retirement plan is a lump sum amount that is taxable under subparagraph 56(1)(a)(i), a deduction may be permitted under paragraph 60(j) relating to all or a portion of the lump sum which is transferred to a registered retirement savings plan or to a registered pension plan. The tax-deferred rollover is not available for amounts which are received on a periodic basis out of the pension plan, nor is it available for amounts for which the recipient has taken a deduction under subparagraph 110(1)(f)(i) due to a specific provision of the Canada-UK Tax Convention. For more information, see paragraph 26 of Interpretation Bulletin IT-528, Transfers of Funds Between Registered Plans.

The Canada-UK Tax Convention does not limit Canada's right to tax payments received by a Canadian resident from a UK retirement plan, therefore no deduction would be available under subparagraph 110(1)(f)(i). The amount received from the foreign retirement plan would be taxable in Canada regardless of whether the amounts received from a foreign retirement plan would or would not have been taxable to a resident of that foreign jurisdiction.

It is our view that your comments with respect to paragraph 6(1)(h) and section 94 are not applicable in this case.

We trust our comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CPA, CA
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  Unless otherwise stated, all statutory references in this letter are references to the provisions of the Income Tax Act (the “Act”).

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