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

According to CRA’s Community Volunteer Income Tax Program (CVITP) guidelines, volunteers cannot assist clients with foreign income, except for U.S. Social Security benefits. As a result, some low-income seniors in Canada who receive foreign pensions are unfortunately ineligible for CVITP tax preparation services.

This restriction 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 nation 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 does assist a client with foreign pension income, follow these steps:

• 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 does not know or apply treaty provisions. The preparer must determine or be advised by the client whether any portion of the pension is exempt.