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Tax Filing Headaches Continue for German Pension Recipients

December 8, 2010

Canadian residents are required to pay tax on world income in Canadian funds and tax treaties in place with over 80 countries assist governments to help Canadians avoid double taxation with provisions like the foreign tax credit.

Generally, only the portion of benefits received under the social security program of another country that would have been taxable in the originating country has to be included in income on a Canadian tax return. In Germany, the taxable portion began at 50% in 2005 and will rise incrementally depending upon the type of income, when it started and the status of the recipient. By 2040 100% of German Social Security Income will be taxable.

More detailed information on taxation of German Social Security Pension income is available:

Canadians receiving social security pensions from Germany have recently been required to file a tax return in Germany to report their pensions there for tax years 2005 to 2009, and this new requirement has hit a snag here in Canada, as CRA is grappling with how to treat the potential double taxation.

According to Siegfried Merten, MFA, it is important to file a notice of objection and request for cancellation of penalty interest with the German Tax Office. As well, check the non-German income thresholds for non-German income to see if it is possible that the taxpayer is exempt from German tax.

The current tax treaty with Germany refers to the exchange of info between Canada and Germany regarding Social Security Benefits: "With reference to Article 18, paragraph 3, subparagraph (c), the competent authority of a Contracting State shall notify the competent authority of the other Contracting State of changes made to the amount of social security benefits excluded from the taxable income of a resident of the first-mentioned State receiving such benefits.

Article 23 of the tax treaty deals with measures to eliminate double taxation and, according to Mr. Merten, this should apply to the current situation with Germany.

The full text of the tax treaty with Germany is available:

Unfortunately, these tax assessments have come as a surprise to most of the Canadian pension recipients, it seems, many of whom are elderly, disabled and understandably distressed about this. The German government has provided short timelines for filing and stringent penalty and interest provisions without fairness provisions for the hardship scenarios this is causing in some cases, especially the disabled or those who are alone without access to help.

The German Consulate will not answer questions here; referring callers to the International Tax Office here in Canada, who has told Knowledge Bureau reporters they have no further information at this time. According to that office, we do not yet know whether extra taxes paid in Germany this year will qualify for a foreign tax credit in 2010 in Canada, whether all taxes paid there this year will be allowed for credit in 2010 or if taxpayers will have to adjust prior filed returns to access relief from double taxation. We will keep you posted; in the meantime here is contact information for those seeking German tax filing information:

German Tax Office: Financzamt Neubrandenburg, Postfach 110164, 17041 Neubrandenburg, Germany, Phone -11149 395 4422247 000; Fax 01149 395 380 1059 and email:

International Tax Office in Canada: 1-800-267-5177

ADDITIONAL EDUCATIONAL RESOURCES: Cross Border Taxation course and EverGreen Explanatory Notes.