Principal Issues: [TaxInterpretations translation] Is a retirement pension received by a surviving spouse deductible pursuant to subparagraph 110(1)(f)(i) of the Act if it originates in France and is received by reason of the deceased taxpayer's previous employment in France?
Position: Yes.
Reasons: Paragraph 1 of Article XVIII of the Canada-France Tax Convention also applies to the pension paid to the individual who is the surviving spouse of the taxpayer who held the previous employment in France.
May 3, 2005
Ms. Louise Naud Headquarters
Quebec Tax Services Office Sylvie Labarre, CA
(613) 957-89532005-012002
Pension received by a surviving spouse
This is further to your email of March 8, 2005, in which you requested our opinion regarding the application of subparagraph 110(1)(f)(i) of the Income Tax Act (the "Act") in this situation.
A person, resident in Canada, was the spouse of a deceased taxpayer. The deceased taxpayer was a resident of Canada who, prior to his death, was in receipt of a retirement pension from France by reason of his previous employment in France. The surviving spouse now receives the retirement pension.
The deceased taxpayer was not taxed in Canada on his retirement pension by virtue of paragraph 1 of Article XVIII of the Canada-France Tax Convention.
You wish to know if the retirement pension received by the surviving spouse is exempt from tax in Canada by virtue of the Canada-France Tax Convention.
Our Comments
A superannuation or pension benefit received by an individual resident in Canada is included in computing the individual's net income pursuant to paragraph 56(1)(a) of the Act.
However, subparagraph 110(1)(f)(i) may allow a deduction of the same amount in computing taxable income. That subparagraph provides for the deduction of an amount exempt from income tax in Canada because of a provision contained in a tax convention or agreement with another country that has the force of law in Canada.
Paragraph 1 of Article XVIII of the Canada-France Tax Convention states the following:
1. Periodic or non-periodic pensions and other similar allowances arising in a Contracting State and paid in respect of past employment to a resident of the other Contracting State shall be taxable only in the Contracting State in which they arise.
According to the facts you have stated, the deceased taxpayer was exempted from Canadian income tax in respect of the retirement pension by this paragraph because it was a pension paid in respect of his previous employment. In such circumstances, it is our view that paragraph 1 of Article XVIII of the Canada-France Tax Convention would also apply in respect of the retirement pension paid to the surviving spouse in respect of the deceased taxpayer's previous employment. Consequently, the surviving spouse would be able to deduct the amount of the retirement pension in computing her taxable income pursuant to subparagraph 110(1)(f)(i).
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance. Should you require further information on the content of this document, please do not hesitate to contact us.
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch