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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Need some information on taxation Person is a permanent

Customer Question

Need some information on taxation Person is a permanent landed immigrant in Canada since the 70s - German descent Now is a senior Receives old age security from Canada Also receives a widow pension from the German government since 2008 Now German government wants an income tax form filled out Currently receives about 500 a month from Germany ---- 1. What would the reduction likely be 2. Would the person have to pay something back Only collects about 800 dollars old age security as it is and total net income is about 12g yearly or 18g with the german pension Need somone conversant in german taxation laws, thanks Optional Information: State/Country relating to question: Canada
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

LEV :

Hi and welcome to Just Answer!
Your your specific circumstances you need to apply rules from Canada-Germany tax treaty - http://www.toronto.diplo.de/contentblob/2070004/Daten/282190/download_Doppelbesteuerungsabkommen.pdf
See Article 18 Pensions, Annuities and Similar Payments:


3. Notwithstanding any provision in this Agreement:
(c) benefits under the social security legislation in a Contracting State paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such benefits that would be excluded from taxable income in the first mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State;


Beginning in 2003, Canada started tax the same portion of the pension payments that Germany would tax if the individual were resident in Germany. This portion is roughly based on the income earned in the pension. The chart in this publication shows the percentage of the payments that are taxable. The taxable portion depends on the age of the taxpayer on the date the pension payments first began. - http://www.cra-arc.gc.ca/tx/nnrsdnts/ntcs/grmny-eng.html

LEV :

Starting 2005 a new law on taxation of old age pensions (Alterseinkünftegesetz) entered into force in Germany. In case of a pension commencement in 2005 or before the tax office determines a fixed tax-exempt amount considering a taxation rate of 50 %. The tax-exempt amount is in principle accounted for every year and during the whole retention of the pension payment.


For every new pensioner age group from 2006 onwards the taxation rate rises by two percentage points, and for every pensioner age group from 2021 it rises by one percentage point. Thus, the tax-exempt amount resulting from this declines gradually for every new pensioner age group. For pensioner age groups from the year 2040 100 % of the pension form the statutory pension insurance will be subject to taxation.


Personens who receive old age pensions from Germany and reside in Canada are therefore obliged to submit a tax declaration in Germany. Tax declaration forms can be downloaded from here - https://www.formulare-bfinv.de/
Brochure from the German Federal Ministry of Finance on the new taxation legislation for German pensions – http://www.toronto.diplo.de/contentblob/2070006/Daten/279057/download_Alterseinknftegesetz.pdf
Considering small amouts of income - most likely there will not be any liability. But to be precised - all tax forms should be filled.

Customer:

Thankyou for the provision of the info. I have some more questions.

Customer:

So, if she got the widowers pension from Germany in 2008

Customer:

she would be taxed 56 percent

Customer:

of the german pension.

Customer:

also she never got a german pension when she retired but I think it was from her deceased husband portion - dont know if that makes a difference?

Customer:

So even if she eligible for a tax credit in Canada for what now the Germans take off, are you implying or stating with high ascertainty that her current 500 dollars she is getting - WONT be reduced because of her low net income in canada as it is?

Customer:

She clears about 12g as it is OR 18g if you included the roughly 6000 from Germany

Customer:

Please clarify, thanks

Expert:  Lev replied 2 years ago.
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Expert:  Lev replied 2 years ago.
The first step would be to determine part of German pension which is taxable.
That is based on the age reached by the taxpayer when the pension payment started. If the payments began after the individual turned 65 (but before he or she turned 66), the taxable portion from the table is 27%.
So from 6000 of German pension - only 6000*27%=1620 will be taxable, and the rest 4380 will be is tax free.
Then - the actual tax liability will be based on the total income. If social security is the only income - most likely - there will not be any or very little tax liability..
The tax rate in Germany ranges from 0% to 45% - so there will not be 56% tax as you suggested.
The tax liability in Germany - if any - will be credited against Canada tax liability - if any - thus effectively she will avoid double taxation.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22704
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

You seem very fluent in navigating the tax tables etc

She was 82 when she received my deceased fathers pension from Germany

Expert:  Lev replied 2 years ago.
As I mentioned above - the taxable portion depends on the age of the taxpayer on the date the pension payments first began.
See page 14 - http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000g-10e.pdf
Line 115 – Other pensions or superannuation.
Enter on line 115 any other pensions or superannuation you received. Report in Canadian dollars the gross amount of your foreign pension income received in 2010. Attach a note to your paper return identifying the type of pension you received and the country it came from.
You can claim a deduction on line 256 for the part of your foreign pension income that is tax-free in Canada because of a tax treaty.
For the tax table - see this page and scroll down - http://www.cra-arc.gc.ca/tx/nnrsdnts/ntcs/grmny-eng.html
She does need to file her tax return. Please provide all information above to the tax preparer for determination.
Customer: replied 2 years ago.

Either your information is incorrect

or the in person tax person I saw today is off his rocker

 

German government doesnt take into consideration any social assistance provided by the country she lives in now (canada)

 

However, they stated, she would be paying back apprx 12.5 percent of what she was paid out yearly.

So if she got 6000 dollars - 750 dollars

Multiply that by 3 years - over 2100 dollars

 

I hope he is wrong vs what you initially stated that impact is minimum or none

 

Wonder if you will answer on this

Expert:  Lev replied 2 years ago.

As I mentioned above - persons who receive old age pensions from Germany and reside in Canada are therefore obliged to submit a tax declaration in Germany.
If there are any tax liability in Germany depends on many circumstances - mainly on other taxable income the person has.

There are two steps in calculation of tax liability - first you determine the taxable portion of the old age pension; the second step is to add other taxable income and calculate tax liability.

Similarly - the same procedure i s for each year she received the old age pension.

 

The next would be to prepare Canadian tax return - and include the old age pension from Germany - it is not excluded as it was before. Canadian tax liability is calculated based on total taxable income, but if the same income is taxable in both country - there will be a credit for taxes paid to Germany.

 

Unfortunately I am not able to verify calculations - but that would be a procedure to follow to verify if your tax preparer is correct.

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