2021-0884531E5 Australian self-managed super fund

Principal Issues: What are the Canadian income tax implications of holding an interest in an Australian self-managed super fund (SMSF), at the time of immigration to Canada, and subsequently as a resident of Canada?

Position: General comments provided.

Reasons: Due to insufficient information, we are unable to provide determinative comments.

Author: Podor, Karina
Section: 56(1)(a)(i); 6(1)(g)

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                                                                                                  2021-088453
                                                                                                  K. Podor

June 3, 2021

Dear XXXXXXXXXX:

Re: Australian Self-Managed Super Fund

This is in reply to your correspondence dated March 9, 2021 in which you requested our views concerning the income tax implications in Canada of holding an interest in an Australian Self-Managed Super Fund (“SMSF”), both at the time a taxpayer immigrates to Canada and afterwards while a Canadian resident.

Specifically, you asked us to confirm whether the SMSF in this case, would be considered a pension plan for purposes of the Income Tax Act (the “Act”) (footnote 1) . You also requested our comments as to the taxation of any investment income earned in the fund and whether paragraphs 128.1(1)(b) and (c) would apply to the taxpayer’s interest in the fund at the time of immigration.

We understand that a SMSF is a type of private super fund established in Australia by members who are responsible for the management and control of the fund. Generally, a SMSF is regulated by the Australian Taxation Office and is operated solely for the purpose of providing retirement benefits for its members or their dependants. Members of the SMSF are ultimately responsible for complying with Australian laws and regulations.

Based on the limited information provided to us, we understand the facts of this particular case to be as follows:

* The taxpayer is an individual who was previously a resident of Australia;

* While the taxpayer resided in Australia, he created a SMSF. The particular SMSF is a trust under Australian law, created for a single beneficiary; the taxpayer is both a trustee and the sole beneficiary of the SMSF; and

* There are no employer contributions to this particular SMSF.

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 70-6R11, Advance Income Tax Rulings and Technical Interpretations.

In determining the Canadian tax treatment of any foreign retirement arrangement, one needs to consider whether the plan is a pension plan and/or an employee benefit plan (“EBP”) for 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. 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.

We can confirm that if no employer contributions have been made to a foreign retirement arrangement, the plan will not be considered a pension plan, nor an EBP for Canadian income tax purposes. As such, where the SMSF is neither a pension plan nor an EBP, withdrawals from the fund 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. Any income or capital gain earned in connection with a plan that is neither a pension plan nor EBP is generally taxable in Canada on a current, annual basis; however, this determination is ultimately a question of fact and will depend on the characterization of the particular plan and its respective treatment under the Act.

We do not have sufficient information to respond to your question regarding the potential application of paragraphs 128.1(1)(b) and (c) to the taxpayer’s interest in the SMSF at the time of immigration. We would be happy to consider this matter further in the context of an advance income tax ruling request submitted in accordance with Information Circular IC70-6R11.

We trust these comments will be of assistance.

Yours truly,

Kimberly Duval, 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 indicated, all references are to the Income Tax Act.

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