Foreign Pension Income Taxation ' A Canadian Tax Lawyer Analysis

• Published date: 16 September 2020
• Subject Matter: Employment and HR, Tax, Retirement, Superannuation & Pensions, Tax Treaties, Income Tax
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

Many immigrants had a career before they moved to Canada and they might be eligible to receive a foreign pension from another country. Since Canadian residents are taxed on their worldwide income, new immigrants are often taken by surprise that their foreign pension payments could be subject to Canadian tax even though the amounts may not be taxable in the country paying the pension. To avoid this nasty surprise, it is important to seek proper legal assistance from an experienced tax lawyer in Canada.

How to report foreign pension income on your tax return

When foreign pension income is regarded as taxable income, it should be reported in Canadian dollars on line 11500 of the person's T1 return. The pensioner can sometimes choose to receive the payments either in a lump sum or periodically. The former requires the pensioner to convert the foreign lump sum payment into Canadian dollars using the exchange rate on the day the payment went into the account, while the latter uses an average conversion rate during the period the person received those payments.

How to avoid double taxation

Since foreign pension income is sometimes taxable in the home country where it originates, a double taxation problem arises when it is taxed again in Canada. However, there are several methods to mitigate the effect of double taxation.

Tax treaties may set out specific rules or agreements that deem all or part of your pension income as non-taxable. Therefore, it's always a good practice to consult with a Canadian tax lawyer to review the specific provisions of the tax treaty. If the pension income is indeed exempted, you can claim a deduction for the amount on line 25600 of your tax return.

If the treaty doesn't contain such exemption provisions, you may still reduce your tax burden by claiming foreign tax credits on the amount of tax you already paid for the pension income in another country. Under this scenario, you need to fill form T2209 Federal Foreign Tax Credit to calculate the credits, and report the amount on line 40500 of your income tax return.

Two recent cases that delve into foreign pension income taxation

Let's look at two recent cases decided in 2019 that shed some light on this issue.

2157. Rasmussen v The Queen, 2019 TCC 124; [2019] 4 CTC 2157.

This case dealt with a former Queensland police officer in Australia who immigrated to Canada in 2013 after his retirement. During the time he was employed in Australia, both the police officer and his employer...