FOREIGN PENSIONS (other than U.S. Social Security)

According to CRA’s Community Volunteer Income Tax Program (CVITP) guidelines, clinics are advised not to assist clients with foreign income, except for U.S. Social Security benefits.

This restriction presumably exists because the tax treatment of foreign pensions often depends on the terms of an international tax treaty, which volunteers are not expected to interpret. Additional complications may also arise regarding credits or deductions for foreign taxes paid.

Some initial issues that would need to be addressed:

• Is there a treaty?
• If so, is the pension income fully or partially exempt from tax under the treaty?
• Did the foreign payer withhold any foreign tax?
• Does the client know the gross pension amount prior to withholding tax?
• If tax was withheld, can foreign tax credits be claimed?

UFile steps:

If for some reason the tax clinic is permitted to assist a client with foreign pension income, these steps should be followed:

• Check for a tax treaty between Canada and the foreign country, and review any provisions relating to the taxation of that country’s pension income in Canada.
• Under Interview setup, select the box for Foreign income within the section on Investment income and expenses.
• In the Foreign non-business income section, click the + next to Foreign pension income.
• Enter details, including

• country,
• gross amount received (before withholding tax or deductions),
• amount exempt under a treaty,
• amount of foreign tax paid.  

UFile will:

• Report total pension income
• Apply a deduction for any exempt portion
• Generate a T2209 for the federal foreign tax credit and a T2036 for the Ontario foreign tax credit.

Important: Although the name of the foreign country is entered in UFile, UFile has no awareness of the treaty provisions and it doesn’t apply treaty provisions.