How does Art. 18 of the Canada-Turkey Treaty (the “Convention”) apply to a payment arising in Canada and paid to a resident of Turkey under:
- an annuity contract described in s. 12.2;
- an annuity contract described in s. 56(1)(d); or
- a contract described in para. (a) of the definition of "retirement savings plan" under s. 146(1) (an "Annuity-Type RRSP")?
CRA responded:
Q.1
Since there is no deduction available for the cost of any annuity in the case of an annuity referred to in section 12.2… the payment made under this type of contract is not excluded from the definition of "annuities" in Article 18, paragraph 5… . The rate reduction provided for in Article 18, paragraph 3… therefore could apply.
Q.2
While some might argue [having regard to the exclusion from “annuity” in Art. 18, para. 5 of “any annuity the cost of which was deductible”] that the deduction under paragraph 60(a) is a deduction of a portion of the cost of the annuity, the cost is not deductible when the contract is acquired. The deduction under paragraph 60(a) contemplates the exclusion from income of the portion of the particular payment that represents capital. …
…[T]his type of deduction would not be covered by any of the exceptions set out in the definition of "annuities" in Article 18, paragraph 5… .. An annuity payment referred to in paragraph 56(1)(d) would, in our view, be an annuity within the meaning of the Convention and the reduction in the Canadian tax rate provided for in paragraph 3 of Article 18 of the Convention would be applicable in such a case.
Q.3
Since premiums paid by a taxpayer to an Annuity-Type RRSP are generally deductible in computing income…this type of contract will not constitute an annuity within the meaning of paragraph 5 of Article 18 of the Convention, and paragraph 3 of Article 18 will not apply.
…[A] payment made under an Annuity-Type RRSP…is included in the definition of "pension" in subparagraph (a)(ii) of section 5 of the [Income Tax Conventions] Interpretation Act.
Finally, the payment of an annuity from the maturity of an Annuity-Type RRSP is a "periodic pension payment" since it is not covered by any of the exceptions listed in paragraphs (a) to (d) of the definition of the expression under section 5 of the Interpretation Act. The reduced rate determined under paragraph 2 of Article 18 of the Convention should therefore apply.