The Chilean government, in response to the pandemic, adopted an exceptional measure (the “Measure”) in 2020, permitting the withdrawal of up to 10% of the pension savings in the individual pension accounts managed by the Pensions Funds Administrators (“AFP”) in Chile. Would such an amount transferred by the AFP to a Canadian bank account of Chilean citizens who are resident in Canada be subject to Canadian tax?
After indicating that s. 56(1)(a)(i) applies to any amount received by a taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of, a superannuation or pension benefit even if it is in the nature of a single payment, and that “s. 56(1)(a)(i) … applies equally to benefits from a foreign pension plan that are attributable to services rendered while the individual was not a resident of Canada,” CRA stated:
In accordance with Article 18(1) of the [Canada-Chile] Treaty, pensions arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in the Contracting State in which they arise. Therefore, where an amount received by a person resident in Canada out of or under the individual pension account resulting from the Measure is a superannuation or pension benefit under the Act and is included in the person’s income for the year, the person may claim a deduction for the amount under subparagraph 110(1)(f)(i) of the Act.