Principal Issues: Whether a pension received by a Canadian resident from the South African government is exempt from income tax in Canada.
Position: In this case, no.
Reasons: The pension is an amount described in paragraph 56(1)(a) of the Act and paragraph 81(1)(e) of the Act does not apply.
2007-025104 XXXXXXXXXX A. Seidel, CMA (613) 957-2058 November 13, 2007
Dear XXXXXXXXXX:
Re: Pension Income
This is in response to your letter in which you requested our comments regarding the taxation of the pension income you receive from the government of South Africa.
Background
You indicate in your letter that you receive a pension from the Government Employees Fund in South Africa and that the Surrey Taxation Centre has determined that such pension is to be included in computing your income and is subject to tax in Canada. It is your view that such pension income should not be subject to income taxation in Canada.
Our Comments
Subparagraph 56(1)(a)(i) of the Income Tax Act (the "Act") includes, in computing the income of a taxpayer for a taxation year, "any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of, a superannuation or pension benefit including ... the amount of any payment out of or under a foreign retirement arrangement established under the laws of a country, except to the extent that the amount would not, if the taxpayer were resident in the country, be subject to income taxation in the country".
Pursuant to paragraph 81(1)(e) of the Act, certain "war pension" income is not included in computing a taxpayer's income for a taxation year. However, paragraph 81(1)(e) only applies to pension payments arising out of service during World War I or World War II and made by countries that were allies of Canada at the time of war. It is therefore our view that the pension amounts that you receive from the South African government would not qualify for the paragraph 81(1)(e) exclusion from income in Canada. Clause 56(1)(a)(i)(C.1) of the Act excludes from the application of paragraph 56(1)(a) any pension amount that would, if the taxpayer were resident in the country paying the pension, not be subject to income taxation in that country. It is our understanding that any pension income received from the South African government is subject to income tax in South Africa unless it is a "War Veteran's pension" (a person who has served in The First World War, The Second World War or The Korean War). It is also our understanding that the pension amounts received by you do not qualify as a War Veteran's pension. Accordingly, it is our view that the pension amounts you receive from the South African government do not meet this exception and must, therefore, be included in computing your income pursuant to paragraph 56(1)(a) of the Act.
As discussed in our telephone conversation (Seidel/XXXXXXXXXX), the Canada Revenue Agency is responsible for administering and enforcing the Act as enacted by Parliament. To exclude from Canadian income tax the pension income you receive from the government of South Africa is a tax policy issue that would require an amendment to the Act. These are the responsibility of the Department of Finance Canada. Since you believe that the pension income that you receive from the government of South Africa should not be subject to income tax in Canada, we will forward a copy of your letter to the Department of Finance for their consideration.
Yours truly,
Daryl Boychuk
for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch