German Tax Collection News

There is lots of news for Canadian taxpayers in receipt of German pensions. Ignoring these developments can result in unnecessarily high levels of taxation, or in punitive penalties for non-compliance, in both Germany and Canada.

In fact, for those pensioners who fail to respond to the Notices from Germany or to pay their tax obligations, their file will be forwarded on to the Garnishment Office.  This Department has the authority to seize the pensioner’s German assets and/or to invoke Article 27 of the Tax Treaty and ask Canada for assistance in collection.  And that’s where trouble with CRA can begin. . .especially if the pension recipient has failed to disclose receipt of this income on their Canadian returns.

Sigi Merten, MFA, will help to explain the consequences at the Toronto DAW on January 25. In the meantime, he has provided this explanation to KBR Readers:

1. Tax Assessments Coming Within Two Months. The German Tax Office, also known as FAN (Finanzamt Neubrandenburg), is now sending German pension recipients living in Canada a letter stating that they will be sending them Tax Assessments in about two months time. At the same time they are making the pensioner aware of the option to be taxed at the lowest tax rate. The Finanzamt letter has included an English version which in part states:

Application for treatment to unlimited tax liability.  For your application to be granted, you must submit confirmation using the tax notices (Income Tax Return Information Regular or Tax Return Summary).

2.  Documentation Matters – High Rate Tax Charged for Wrong Forms.  To be sure that they can even be considered for the lower tax rate on their German pension income, taxpayers should submit to the German Tax Office a complete summary of all their income from the income page of their Canadian T-1 tax return, which shows income broken down from Line 101 to Line 150, rather than just the summary from their Notice of Assessment.

Most pensioners are sending the CRA Notice of Assessment (NOA) Summary page to Germany, showing Line 150 from their Canadian tax return. However, FAN considers this insufficient information to calculate if the individual qualifies for the lowest tax rate. As a result, FAN informs the pensioner that, due to insufficient information, they are assessing them at the highest tax rate. If the pensioner disagrees with FAN’s assessment, they still have two months from the date of the Bescheid (Assessment) to file an objection. Thereafter there is no recourse and they have to pay the assessed tax amount even if they are assessed in the incorrect tax category.

3.  Double Trouble - Both FAN and CRA are going after German pension recipients who are avoiding declaring or paying taxes on their German pension.

The German Tax Office, FAN (Finanzamt Neubrandenburg), has started sending out Notices (Vollstreckungsankündigung) to those pension recipients living in Canada who have never responded or paid their taxes as requested (Bescheid) to Germany starting as of 2005.  These Notices show all the amounts owing and the years delinquent along with a monthly 0.5% late fee applied. The pensioner is requested to pay all amounts within a couple of months or to apply to arrange for a payment schedule (Stundung).

To guarantee collection of taxes, the German Tax Office has been given the power to invoke a withholding tax (Anordnung des Steuerabzugs) to be taken from the pension of confirmed non-compliant pensioners. This is only possible for future years and the pensioner is still responsible for paying his or her tax obligations for all prior years.

Knowledge Bureau Report would like to thank Sigi for this submission.  For assistance with these matters contact Siegfried Merten, MFA, mertenfinancial@cogeco.ca, 905-708-5889, www.mertenfinancial.ca.
 

"Clients feel a lot more confident and at ease with a person who holds a designation. Persons with a designation are generally more up to date since along with the designation goes the commitment of not just being good but to be the best." Seigfried Merten.

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