Principal Issues: Whether the income derived from a Swiss Pillar 2 vested benefits policy (the “Policy”) held by a Canadian taxpayer is included in computing his income under the Act during the accumulation period.
Position: Likely not.
Reasons: Subject to the review of all facts and circumstances surrounding the relevant situation, we are of the view that the Policy is a superannuation or pension plan for the purpose of the Act. Therefore, the accumulated income will only be included in the Canadian taxpayer's income at the time of receipt under paragraph 56(1)a).
XXXXXXXXXX 2016-064065
Marie-Claude Routhier
LL. B., D.D.N., M. Fisc.
April 12, 2018
Dear Sir,
Subject: Swiss vested benefits policy
This letter responds to your correspondence of March 14, 2016 and December 1, 2017 in which you requested our comments concerning the taxation, during the accumulation period, of income from a Swiss vested benefits policy for the purposes of the Income Tax Act (the "Act"). We apologize for the delay in responding to your request.
Specifically, you immigrated to Canada in the XXXXXXXXXX taxation year and were previously resident in Switzerland. Before you left that country, you and your employer had contributed without interruption to the employer’s second pillar (occupational) pension plan (the "Plan"), XXXXXXXXXX. When you left Switzerland, the legislation of that country required that the funds accumulated in the Plan be transferred to a vested benefits account or policy. You opted for the second option (the "Policy"). Like the Plan, the purpose of the Policy is to pay old-age benefits from a predetermined age.
You left Canada during XXXXXXXXXX and returned to your job in Switzerland. In the case of return to employment, the legislation of that country requires that the funds accumulated in the Policy be returned to the second pillar pension plan of your Swiss employer, which has been done. Since you have not reached retirement age, you have not received any pension or capital distributions from the Plan or the Policy. XXXXXXXXXX.
You wish to know if you must or should include this income in your Canadian tax returns for taxation years XXXXXXXXXX to XXXXXXXXXX inclusive and, if not, whether it is possible to claim the refund of Canadian taxes paid in this regard during the period mentioned above.
Unless otherwise indicated, all statutory references in this document are to the provisions of the Act.
Our Comments
This technical interpretation provides general comments about the provisions of the Ac. 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Subsection 248(1) provides that a superannuation or pension benefit includes any amount received out of or under a superannuation or pension fund or plan. Neither the Act nor the Income Tax Regulations define what constitutes a "superannuation or pension fund or plan". Generally speaking, we are of the view that a plan will be considered a superannuation or pension fund or plan where amounts have been promised or contributed to the fund or plan by or on behalf of an employer or a former employer for services rendered by the employee to provide the employee with an annuity or other periodic payment at the time of retirement.
Amounts received by the beneficiary of a superannuation or pension fund or plan generally constitute superannuation or pension benefits and are only taxed in the year of payment, pursuant to paragraph 56(1)(a).
The question of whether a taxpayer has an interest in a superannuation or pension fund or plan or other type of plan or arrangement is a question of fact that can only be resolved after a full examination of all the facts, actions, circumstances and relevant documents surrounding each situation. Subject to the analysis of the terms and conditions of the contracts and relevant facts, it appears to us that the Policy could qualify as a superannuation or pension fund or plan.
In the event that a Swiss vested benefits policy qualifies as a fund or a superannuation or pension fund or plan, we are of the view that the income derived from it during a period of Canadian residence of the beneficiary should not be included in the calculation of his or her income to the extent that that it was not received by the beneficiary. If applicable, taxes paid in this regard may be subject to a refund claim with the Canadian tax authorities.
We hope that our comments will be of assistance.
Best regards,
Louise J. Roy, CPA, CGA
Manager
for the Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch