Principal Issues: Foreign pension matured, and proceeds used to purchase an annuity. Are the proceeds taxable?
Position: Referred to TSO
Reasons: Completed transaction
XXXXXXXXXX 2005-012418
S. E. Thomson
April 13, 2005
Dear XXXXXXXXXX:
Re: Pension from South Africa
This is in reply to your letter of March 1, 2005 to the Winnipeg Tax Centre. The Winnipeg Tax Centre has forwarded your letter to us for reply. In your letter you explain that a pension policy of yours in South Africa matured in 2004. Two-thirds of the pension benefit was used to purchase an annuity in South Africa. The remaining one-third of the pension benefits was deposited to your bank account in Calgary in a lump sum. You would like to know if the one-third portion is taxable to you in Canada in 2004.
Where a particular transaction is ongoing, or has been completed, a determination of the tax consequences is the responsibility of the local tax services office. The tax services office serving Calgary is located at:
Canada Revenue Agency
Calgary Tax Services Office
220-4th Avenue SE
Calgary, Alberta
T2G 0L1
However, we are able to offer the following general comments on the relevant provision of the Income Tax Act (the "Act"), which may apply. Please note that since these comments are general in nature, they may or may not apply in your situation. As such, the comments are not binding on the Canada Revenue Agency.
Pursuant to subparagraph 56(1)(a)(i) of the Act, any amount received by a taxpayer in a year as, on account or in lieu of payment of, or in satisfaction of a superannuation or pension benefit shall be included in computing the income of the taxpayer for the year. In our view, the one-third portion of the pension benefit you describe above is to be included in your income in 2004. The Canada-South Africa Income Tax Convention does not prevent Canada from taxing pension benefits received by a resident of Canada. In addition, the two-thirds portion of the pension benefit may also be required to be included in your income in 2004. However, you should contact the tax services office at the address above, which will be able to make a final determination based on the particular facts. The tax services office may ask you for more information.
We trust that we have been of some assistance.
Yours truly,
Olli Laurikainen, C.A., Manager
for Director
International & Trusts Division
Income Tax Rulings Directorate