Dear Sirs:
Re: Foreign Pension Arrangements
This is in reply to your letter dated June 27, 1991 whereby you requested our views as to the deductibility of contributions to a foreign pension arrangement in the following hypothetical situation:
1. A is a taxpayer resident in Canada.
2. B is a resident of the United Kingdom
3. The AB Partnership is a 50-50 partnership between A and B. The AB Partnership carries on business in the United Kingdom. It does not carry on any business or have any employees in Canada. Non of its employees are resident in Canada.
4. The AB Partnership has established a "pension scheme" for its employees in the United Kingdom (the "UK Pension Plan") which is administered and operated in the United Kingdom. The custodian of the UK Pension Plan is not resident in Canada. The UK Pension Plan is not registered by the Minister of National Revenue for the purposes of the Income Tax Act (Canada) (the "Act") and accordingly it is not a "registered pension plan" for the purposes of the Act.
Our Views
We cannot formulate a conclusive opinion in respect of the income tax implications of a particular situation without having first determined and considered all relevant facts pertaining to such a situation. However, we can advise that in our view, if no provision of the Act applies to prohibit or limit the deduction, such as paragraph 18(1)(b), paragraph 18(1)(o), paragraph 18(1)(o,1), paragraph 18(1)(o.2) or section 67 of the Act, and assuming the foreign pension scheme is not a registered pension plan under the Act, contributions made by the AB Partnership to a foreign pension scheme for its employees as described above will generally be deductible in pursuance of section 9 in determining the income of the partnership for purposes of paragraph 96(1)(f) of the Act. Whether the deduction of the contributions will be limited by section 67 of the Act, i.e. whether the particular outlay or expense is reasonable in the circumstances such that no part thereof will be prohibited as a deduction pursuant to section 67, is a question of fact which will not necessarily be determined simply having regard to whether the contributions are in accordance with the income tax and pension laws of the foreign country where the pension scheme is operated.
Yours truly,
for directorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch