Principal Issues: Whether a Canadian-resident individual is required to file Form T1135 in respect of their interest in a US pension plan where the benefits are being paid by the Pension Benefit Guaranty Corporation?
Position: No.
Reasons: The individual's interest in the pension plan satisfies the exception for foreign pension trusts.
XXXXXXXXXX 2018-075361 W. Doiron June 4, 2020
Dear XXXXXXXXXX:
Re: Form T1135 and US pension plan
This is in reply to your email of April 7, 2018 in which you inquire whether a Canadian-resident individual is required to file Form T1135, Foreign Income Verification Statement, in respect of their interest in a US qualified pension plan. We apologize for the delay in our response.
We understand that the plan had insufficient assets to satisfy its pension benefit obligations and was terminated. The Pension Benefit Guaranty Corporation (“PBGC”) was appointed as the trustee of the plan and is now responsible for paying the plan benefits to the members (the majority of whom reside in the US).
Our comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). 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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
The foreign property reporting rules are found in section 233.3 of the Act. In general terms, these rules require certain taxpayers resident in Canada and certain partnerships to file an information return (Form T1135) with respect to their “specified foreign property” if the total cost amount of such property exceeds $100,000. Specified foreign property is broadly defined in subsection 233.3(1), but is subject to a number of exceptions. One of these exceptions is for an interest in a trust that is established in connection with a foreign plan that provides pension, retirement or employee benefits where the trust is exempt from income tax imposed by the country of its residence and is maintained primarily for the benefit of non-resident individuals. This exception is set out in paragraph (n) of the specified foreign property definition and paragraph (b) of the definition “exempt trust” in subsection 233.2(1).
It is our view that the PBGC’s involvement in the administration of the plan has no impact on the availability of the exception for foreign pension trusts. Consequently, the individual would not be required to file Form T1135 in respect of their interest in the plan.
We trust our comments will be of assistance.
Yours truly,
Dave Wurtele
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch