Clarification of German Pension Recipients Letter from Neubrandenburg

Canadians who receive German pensions may have seen some new items on the yearly letter from Neubrandenburg.  Siegfried Merten, MFA™, has provided us with clarification on this letter and what pensioners need to do to remain in compliance. Advisors can be of great assistance here.

Every year, German Pension Recipients receive a letter from the German Pension Office that states the monthly pension amount paid and the new monthly pension payment amounts as of July 1. On the backside of this letter, it states that you are required to submit an income tax return in Germany (“Sie sind verpflichtet, in Deutschland eine Einkommensteuererklärung abzugeben”).

First, if no German tax return was filed, the German Tax Office will send several years of outstanding tax assessments (“Bescheid”) at one time to the taxpayer. Many were now surprised to find an interest fee box (“Zinsenbox”) included on the assessments they received that was more than 2 years past due.

To simplify things for the Finanzamt and us, instead of a 5-6-page German 1A or 1C tax return, we have been filing a 1-page German Tax Declaration Form to the German Tax Office in Neubrandenburg since 2011. With this option, the tax office will assess how much tax you need to pay using information from your pension provider. This procedure is known as the tax office assessment procedure (Amtsveranlagungsverfahren).

The Finanzamt would like your permission to send you the yearly assessments automatically.

If you are subject to the limited tax liability (“beschränkt”) you need to just check off the FIRST BOX and fill out the backside of the reply slip “Annex 1” & mail the completed form back to the German Tax Office in Neubrandenburg.  They will tax your German pension at the annual limited tax rate and send you a Bescheid (assessment) each year.

If you are subject to the unlimited tax liability (“unbeschränkt”) you need to check off the SECOND BOX and fill out the backside of the reply slip “Annex 1” & mail the completed form back to the German Tax Office in Neubrandenburg.  You will also need to provide them your Canadian income tax information Line 101 to 150 with a complete breakdown of Line 115.  This will allow them to verify that you qualify for the unlimited tax rate.  It will also allow them to determine the actual lower tax rate that will be applied on your German pension.

Failure to provide the proper detailed Canadian documentation will allow them to tax you at the higher limited tax liability. Providing only the Line 150 information from the CRA Notice of Assessment will almost always result in a limited tax liability assessment.

If you have a computer and also want to communicate by e-mail with the German Tax Office, then you need to also send them Annex 2 filled out.  Please note that all communication both ways needs to be in German.

Going forward you would just wait for the annual assessment and make the payment by the requested date. If your tax liability situation changed you can file an objection instead, by that date, requesting to be taxed at the other rate. 

By failing to comply or missing the payment deadline date, late fees will be added to the outstanding amount at a monthly rate of 1% until the taxes are paid by the pensioner or their heirs.

For assistance with these filings, contact Siegfried Merten, MFA™ – Retirement Services Specialist  www.mertenfinancial.ca

Additional educational resources: Clients with cross-border finances need specialized advice and planning. Learn more about Cross Border Taxation as part of the MFA – Business Services Specialist™ designation or as a certificate course. Take a Free Trial today.

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