Additional information regarding the change to the taxation of German social security pensions

This Notice is intended to provide assistance to Canadian resident recipients of German social security pensions. The Canada Revenue Agency has made every effort to ensure the accuracy of all comments and examples regarding Germany's tax laws and tax administration contained in this Notice. However, should there be any inconsistency between this notice regarding German Taxation and Germany's positions, the German position will prevail. We urge you to consult the German web site at the link provided below for further information.

Effective January 1, 2005, Germany changed its law on taxation of pensions, including social security pensions. According to the new law, social security pensions received from Germany are taxable in Germany.

If you start receiving a German social security pension before 2040, only a portion of the pension received is taxable in Germany.

The Canada Revenue Agency (CRA) Web site has information on how to calculate the non-taxable amount in the document entitled Change to the taxation of social security pensions received from Germany by a resident of Canada – Beginning 2005.

Important notice

Germany’s Federal Fiscal Court reverses a lower court decision by ruling that Germany may tax Canadian resident recipients of German social security pensions

The following information is for Canadian residents that receive social security pensions from Germany

German tax law does not require tax to be withheld from social security pensions Germany pays to residents of Canada. While German tax law generally requires filing a tax return, the German tax administration has introduced a simplified procedure for non-residents who receive a pension from Germany.

Under this procedure, non-residents can file a German tax return, but filing is no longer mandatory. If a tax return is not filed, Germany's Neubrandenburg tax office will assess non-resident pensioners based on the pension they receive and will send the pensioners a notice of assessment together with a reply slip. The pensioners can use the reply slip to object to the assessment or to apply for an amendment of the notice of assessment. Before sending the notice of assessment, the Neubrandenburg tax office will send the pensioners general information about the taxation of German social security pensions. If residents of Canada choose to send a reply slip before receiving the German notice of assessment, the Neubrandenburg tax office will assess their tax owing based on the information they give in their reply slip. For more information, please refer to the reply slip.

How to report the pension in Germany

For information on how to report the pension in Germany, go to the German Web site or contact the tax office in Neubrandenburg. You can also contact them as follows:

As a non-resident of Germany you are only taxable in Germany on your income from sources in Germany and you are not entitled to claim any personal allowances to reduce your tax liability. However, you may be able to elect to be treated as if you were a resident of Germany and benefit from certain allowances.

If you elect to be treated as a resident of Germany you will be required to report your income from all sources (both inside and outside of Germany). While you are not taxable on your income from all sources, it will be taken into consideration to determine the tax rate that will be used to calculate your tax liability on your income from sources in Germany.

You can only make the election if your taxable income in Germany represents at least 90% of your income from all sources or if your income that is not subject to German tax is less than the basic personal allowance in Germany. The basic personal allowance in Germany for 2005 is €6,136 and increased to €7,664 for 2008, €7,834 for 2009 and €8,004 for 2010 and onwards. In calculating your income from all sources, the portion of your Old Age Pension (OAS), Canada Pension Plan (CPP), and Quebec Pension Plan (QPP) that would be taxable in Germany if you were a resident in Germany, is determined in the same manner as the taxable amount of your German social security pension.

Example 1

Mary is a resident of Canada. In 2010, she receives a German social security pension of €16,000 and the equivalent of €800 in interest from a Canadian bank. These are Mary's only sources of income and she has been receiving the same amount of German pension since 2005.

Under German tax law, 50% of Mary's German social security pension is taxable in Germany because the pension began in 2005.

Mary wishes to determine if she is eligible to reduce her German taxes by making an election to be treated as a German resident. She can make the election if she satisfies either of the following tests:

  • at least 90% of her income from all sources must be taxable in Germany; or,
  • her income that is not subject to German tax must be less than the basic personal allowance in Germany (€8,004 for 2010).

Mary's income from all sources under German tax law is €8,000 + €800 = €8,800. Since her income that is subject to tax in Germany represents at least 90% of her income from all sources (€8,000 / €8,800 = 90%) and her Canadian interest income that is not subject to Germany tax (€800) is less than the basic personal allowance of €8,004 she satisfies both tests.

Example 2

In 2010, Peter, a Canadian resident receives a German social security pension of €4,800. In addition, Peter receives OAS and CPP equivalent to €11,000. These are Peter's only sources of income and he has been receiving the same amounts since 2004.

Under German tax law, 50% of Peter's German social security pension is taxable because the pension began before 2005.

Peter wishes to determine if he is eligible to reduce his German taxes by making an election to be treated as a German resident. He knows that he can make the election if his income that is not subject to German tax is less than the basic personal allowance in Germany. In this case, his income that is not subject to German tax is 50% of his Canadian OAS and CPP payments received in the year (i.e., €5,500).

Peter can make the election if he satisfies either of the following tests:

  • at least 90% of his income from all sources must be taxable in Germany; or,
  • his income that is not subject to German tax must be less than the basic personal allowance in Germany (€8,004 for 2010).

Peter's income from all sources under German tax law is €2,400 + €5,500 = €7,900. Since his income subject to tax in Germany does not represent at least 90% of his income from all sources (€2,400 / €7,900 = 30%) he does not satisfy the first test.

However, he does satisfy the second test since his income that is not subject to German tax (i.e., €5,500) is less than the basic personal allowance in Germany.

Making an election

If you decide to make the election available under the German law to be treated as if you were a resident of Germany, you will need to fill out a Non-EU/EEA Certificate, send it to the CRA to get a certificate of residency and a statement of your income, and attach these documents to your non-resident German tax return or reply slip.

Note: The certificate is required only if you meet the 90% test or if your income that is not subject to German tax is below the basic personal allowance for the particular year and you make the election. You can also make the election by filing a resident tax return (form ESt1A including annex R).

A tax return for a particular year in Germany must be filed by May 31 of the following year. For example, the filing date for the tax return for 2010 was May 31, 2011. Once your return is processed by the German tax authorities, a notice of assessment showing your German tax liability will be issued by the tax office in Neubrandenburg. Make sure you keep the notice for your records. You might be asked to prove to the CRA how much German tax you paid.

How to report the pension in Canada

The amount of German social security pension that is taxable in Germany is the same amount that will be taxed in Canada. You must include the full amount of pension received on line 115 of your Canadian tax return and claim a deduction of the non-taxable amount on line 256.

To eliminate double taxation on your German social security pension, you may claim a foreign tax credit against the tax otherwise payable in Canada for the tax paid to the German tax authority. You can claim a foreign tax credit by filling out Form T2209, Federal Foreign Tax Credits.

If you have already filed a Canadian tax return, you will need to request a reassessment of your Canadian tax return once you have received your notice of assessment for the German tax payable. Contact your local tax services office to request a reassessment of your Canadian tax return to allow your eligible claim for any foreign tax credit.

You can find more information on how to request a reassessment.

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