At the time of a “benefit crystallization event” (e.g., retiring or turning 75) for a pension plan member, the UK tax authority (HMRC) imposed a “lifetime allowance charge” (which generally was deducted from pension plan payments made to the member) on 25% of the amount by which the total value of the member’s pension entitlements exceeded a threshold amount (recently, £1,073,100).
After finding that the charge, even though collected by way of deduction against pension payments made to a Canadian-resident pension plan member, did not qualify for a foreign tax credit, CRA went on to find that such deduction did not have the effect of reducing the pension income of the member pursuant to s. 56(1)(a)(i), stating:
Although the Charge may be deducted by a pension scheme administrator from a pension payment, the recipient of the pension payment will normally be considered to have received the gross amount of the payment for purposes of the Act where such amount is a superannuation or pension benefit and must include the full amount in computing the recipient’s income for Canadian tax purposes.