Foreign Pension and Tax

My client receives a German pension and is paying the tax that the German government assesses on the exempt portion. Do I have the option of reporting ALL of the income, not claiming the 50% exemption and claiming the foreign tax paid?

I have a client who also receives the German pension and pays foreign tax on this pension. I use the Foreign tab to show the Total pension received, the 50% Exempt portion, and the Foreign tax paid. My client’s income is low, and she has enough deductions (medical & donations) each year that she pays no taxes. As such, she doesn’t benefit from the foreign tax credit, and thus receives no rebate on the tax she pays in Germany.

Start with the Calculation of the non-taxable portion of the German social security pension.

Do I have the option of reporting ALL of the income,…?

Report 100% of the pension in Canadian dollars on line 11500.

… not claiming the 50% exemption…

Deduct the non-taxable portion of the pension on line 25600.

However, as of 2006, new recipients of this pension will have the tax-free percentage reduced until 2040 when 100% will be taxable for new recipients.

As to the taxable portion now varies depending on the first year it was paid, I will simply refer you to the aforementioned website which provides details and sample calculations.

… claiming the foreign tax paid?

The foreign tax calculation will apply to the taxable amount (Line11500 - Line 15600).

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Thanks for your reply Helga. But I need a little more clarification, please. We have always reported 100% of the pension on Line 11500 and deducted the 50% as you indicate on Line 25600, but never claimed the foreign tax paid… Are you saying that I can claim BOTH the foreign tax paid and the non-taxable portion?? TIA for your help.

Yes. Since your client is paying the Foreign Tax, you can claim a foreign tax credit to mitigate dual taxation. I mentioned this in my post above, however my client doesn’t benefit from this tax credit since she isn’t paying any Canadian taxes.

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You take German pension amount on line 11500 subtract the associated amount from 25600 and use the net of the two (the taxable amount) for the foreign tax credit calculation.

As you continue to refer to 50%, I assume the taxpayer has been receiving his pension since at least 2005. If that is not the case, your percentage is not correct.