Reporting German Social Security Stressing Seniors

Evelyn Jacks

It just doesn’t seem right.  Canadian resident recipients of German Social Security – some now close to 100 years old -  have long been embroiled in a complex “give and take” when it comes to their pension eligibility and taxation.  In at least one case, the fight for tax fairness has caused on couple to pack up and leave the country, according to a tax professional who contacted us with the story.  Here are the issues and how to help:

The Backdrop:  German social security income is fully taxable (in Canadian funds) on line 11500 on the Canadian T1 but it  has been subject to gradually higher income taxes here in Canada as a corresponding deduction on Line 25600 has been decreasing.  This started in 2005 and 2006, when pension recipients could claim based on a locked in amount of  3,480 €  every year.  The amounts change from year to year on line 25600 however, because of currency fluctuation. For later pension starts, the taxable amount has been gradually increasing until it becomes 100% taxable in 2040.   For 2024 the taxable amount is 84%.  CRA can’t seem to wrap their heads around this and generally disputes the claim. 

The Communications Conundrum.  Worse, this year a significant error has been made by the German Pension Department, according to Sigi Merten, who wrote to Knowledge Bureau Report to inform us of it.  Sigi has helped taxpayers for years with these issues in his tax practice. 

He tells us that every year the German Pension Office will send out a proof of Life Certificate, along with an envelope, to be returned to Germany by the end of August.  If this is not done, the German pension payments will automatically stop in November.

This year the German pension offices provided a Pre-Paid envelope telling pensioners not to apply a Canadian International Postage Stamp onto it. Most Pensioners are going to follow the envelopes’ instruction, says Sigi, and mail it without a stamp to Germany.

But there is no evidence that Canada Post has made a special arrangement with the German Post Office.  Those pensioners may find their pension payments are going to be stopped in November, because Canada Post will not accept this arrangement.   Even if they do accept this at local Canada Post outlet, very few pensioners put their return address on the envelope so Canada Post would not even know where to return it to if this is stopped down the line.

Sigi tells us that the whole process to get the pension payments restarted again takes about 4-8 months – a long time to be without a critical pension income source.

So how to help?  Seniors should pay the postage to be sure.

The CRA Factor.  Back home in Canada, dealing with the CRA on the taxation of these pensions is getting much worse, according to Sigi.  In one case,  the pensioner was born in 1921.  He is turning 103 years old this month.  He has been receiving a German pension since 1985 and his available deduction on line 25600 has remained the same at 3,480 € every year since 2005.  “I am assuming that CRA is so confused about line 25600 because every year there is a different Canadian Dollar amount reported (due to currency fluctuation).  The taxpayer is quite upset and can't understand why he has to go through all this aggravation with the CRA.  Not only that, but the translations the CRA insists on having cost over $100 each time”, reports Sigi.

“In the case of another much younger client CRA forced 5 years to correct the same Line 25600 dispute,” says Sigi.  “They decided to pack it up and moved back to Europe.”

The German Withholding Taxes. The German tax authorities meanwhile used to require the filing of a tax return over there as well, but under a “simplified method” an election not to file can be made,  if the taxable income from Germany is 90% of income from all sources or if income not subject to German tax is less than their personal exemption.  If you qualify, taxes will be assessed in Germany based on the amount of pension received.  A Notice of Assessment will be sent and a reply slip, which can be used to appeal or request an amendment 

The Foreign Tax Credit.  Receiving a foreign tax credit (Form T2209) here in Canada can result in disputes as well.  CRA will want to see translated documents here too.  In the meantime, the taxpayer gets the short end of the stick with what Sigi calls the Double Tax Escapade!

Bottom Line:  German pension recipients should be aware of these challenges this month and make sure they don’t miss the August deadline for annual eligibility, and continue to fight for the eligibility for the correct line 25600 deduction.  Given the age of some of the recipients, advocacy on behalf of these taxpayers is most important.