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Any exemptions for a Swiss Pension in Canada?

Rather than trying to read through CRA Tax Treaty jargon; …I have a headache already…I’m hoping to find an answer here. My client has 25,642 in CND of a Swiss pension to report and this has created an amount owing for her of $1,800. She never had to pay in the past being that this is the first full year of filing without her husband who passed away in 2018. I’m afraid there is not much I can do but maybe someone knows something :slight_smile:

Hello Paul:

I don’t recall having any Swiss state pensions for any of my clients, but have seen very many pensions from various EU countries. As Canada has tax treaties with - I believe - all European countries, I think it is a safe bet that you can claim any with holding tax paid to the Swiss government on her Canadian return. This should eliminate most or all of the $1,800 that you calculated. All amounts should be converted to Canadian dollars, of course. I hope this helps.

Hello Paul. I have a client with a Swiss pension and a German Pension. When I did my research there was partial reduction for German Pension and no exemption for Swiss pension. A foreign tax credit can be claimed for any tax withheld by swiss authorities. You may want to double check treaty if pension related to military service, as those are quite often exempted.

Tax treaty provision between Canada and Switzerland, Article 18 below.
Seems like 2(a) will get you out of it if s/he got that pension for working for the Swiss govt?
2(b) - war pension goes the other way, not helpful. This is what @ddickca is referring to I think
2 (c ) - out of my league, no idea about Swiss tax
2(d) - doesn’t seem to apply to your case

edit: if you don’t get the out via treaty then as @swelbourn indicated I think you can get an FTC? Seems like the WHT is 15%…

Legislation and Treaties >> Tax Treaties >> Canada’s Income Tax Conventions >> N – Z >> Switzerland (Applicable — January 1, 1998) >> Article 18 - Pensions and Annuities

Article 18

Pensions and Annuities

  1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State, including payments under the social security legislation in a Contracting State, may be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension or annuity payments (except lump-sum payments arising under the surrender, cancellation, redemption, sale or other alienation of an annuity, and payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract), the tax so charged shall not exceed 15 per cent of the gross amount of the payment.

  2. Notwithstanding anything in this Convention:

(a) pensions paid by, or out of funds created by, Switzerland or a political subdivision or a local authority thereof to any individual in respect of services rendered to Switzerland or subdivision or local authority thereof in the discharge of functions of a governmental nature shall be taxable only in Switzerland;

(b) war pensions and allowances (including pensions and allowances paid to war veterans or paid as a consequence of war) arising in Canada and paid to a resident of Switzerland shall be excluded from the bases used for the computation of Swiss tax, to the extent they would be exempt from Canadian tax if received by a resident of Canada;

(c ) pensions and allowances received from Switzerland under the legislation concerning Military Insurance shall be exempt from Canadian tax so long as they are exempt from Swiss tax;

(d) alimony and other similar payments arising in a Contracting State and paid to a resident of the other Contracting State who is subject to tax therein in respect thereof, shall be taxable only in that other State.

Be careful Stephen with EU pensions - in example, Austrian Old Age is taxed in Austria and subsequently tax free in Canada, however, German pension is taxed in both Countries with gettin credit for taxes paid to Germany - it is a rather complex system

Can someone enlighten me? I always was of the understanding that one could not deduct a withholding tax as a foreign tax credit. Isn’t it supposed to be a “final tax”? I thought you would have to file a tax return in the other country and need the NOA from that country to prove what the “final” tax is.
If I am incorrect, please let me know.

@Rein I think you have to look at it from both “sides”. A withholding tax is typically a tax that is your final tax obligation in that country as a non-resident. However in the “other” country, presumably where the taxpayer is resident, if that same income is taxable, then you may/may not be able to claim a foreign tax credit to offset some of the domestic tax.

E.g. Part XIII withholding tax in Canada is considered to be the non-resident’s final tax obligation in Canada (skipping over some of the fun s.216 stuff). Then you flip perspectives to the foreign country and as a taxpayer you ask yourself, if I’m being taxed on the same income that Canada charged withholding tax, then can I claim a foreign tax credit to offset some of my domestic taxes?

Also there are some instances where you could/may want to deduct the foreign withholding tax paid. I had a corporate client before that paid foreign WHT. It couldn’t use the FTC (use it or lose it) so took a deduction instead. Of course, can’t deduct and claim the FTC. So it depends…

Thanks EChan. Makes sense.

I have clients receiving a Swiss pension. No withholding, no exemption, only taxed in Canada.

The treaty says, “Pensions and annuities arising in a Contracting State …may be taxed in the State in which they arise.” Switzerland is not taxing it.

Further, “a resident of the other Contracting State, …may be taxed … according to the law of that State.” Canada wants its piece of the pie.

Thanks everyone…@ helga_spence …exactly my scenario.