German Pension Audits Cause Confusion

Tax practitioners, financial advisors and their clients should be aware of a new audit focus for taxpayers reporting German pensions which they were entitled to receive prior to 2005.

These taxpayers qualify for a 50 percent exemption on Line 256; however, that exemption will become a fixed amount, in Euros, starting in tax year 2007, based on the amount of qualifying pension income received by the client in 2006. Once the fixed amount has been calculated, it is used for the balance of the taxpayer's lifetime, except in the year of death.

This is clear as mudóif not outright misleading--on the CRA website, which only makes reference to this ìfixationî under the explanation of the tax treatment for those who qualified for the pensions after 2005, leading most readers to believe that the 50% treatment for pensions started before 2005 is not affected.
 
Worse however, is the fact that the audit process, which focuses on the 2007 tax return, has been disallowing the entire claim on Line 256, even though the taxpayer qualifies for this ìfixed amountî of exemption. Be sure to request an adjustment.
 
As no other or clearer information is available on this provision, taxpayers or practitioners who claimed an exemption of 50% on Line 256 may wish to make an appeal under the Taxpayer Relief Provisions, to reverse interest charges.
 
Evelyn Jacks, President, The Knowledge Bureau.  For free information about Breaking Tax and Investment News, self study courses on tax and personal finances, or books on personal finance. Call: 1-800-953-4769.