Some relief for Canadian residents receiving German pensions

The German Tax Office (Finanzamt Neubrandenburg RiA) is giving Canadian residents who receive German pensions some relief from filing German income tax returns. To speed up the process, Canadian residents no longer need to file tax returns to Germany. Instead, the German Tax Office will send you an assessment.

Effective Jan. 1, 2005, Germany changed its law on taxation of pensions, making social security pensions received from Germany taxable in Germany. (Knowledge Bureau Report, Dec. 28, 2010.) That meant Canadian residents who receive German social security pensions had to file a German tax return to determine their tax liabilities. As the Canada Revenue Agency (CRA) explains, only a portion of the pension received is taxable in Germany. (The CRA website provides guidance on how this is calculated.)  As a result of this change, Germany issued "requests to fileî to Canadian residents who received such pensions in the 2005 to 2009 tax years.

Those request proved too much for many older pensioners. So, the German Tax Office changed its approach. It now automatically sends assessment for taxes owing each year alleviating the need to file a German tax return. This year, Germany is assessing only the tax years 2005 and 2006; next year, it will assess the years 2007 to 2011.

In June, the German Tax Office began sending reply letters (Antwort) to all pension recipients whom it had not yet reached. Should you receive this letter, there is no need to do anything. Usually, about one week later, the official assessment notice (Bescheid) follows. One you receive the assessment notice, you have about two months to pay the required taxes.

After you paid your taxes to Germany, you will need to file a T-1 Adjustment (Foreign Tax Credit) with the CRA in order to get back the part that has been double taxed. Article 18 of the Taxation Agreement states that the country paying the pension has first right to taxation. Article 23 states that if you live in a country that also taxes the German pension, that country has to refund via the Foreign Tax Credit any double taxation amounts.

If your non-German income is below a pre-determined limit, you can file an objection. As a result, you will be evaluated as "unrestricted.î If approved, you may qualify for paying a lower tax or no taxes at all. Quite often if you receive government supplements, you may qualify for the unrestricted tax category. Only for the unrestricted category do you submit a Declaration with the proper documentation every year.

It is important to know that the German Tax Office cannot apply an automatic deduction from your pension. If this is something you would like, then contact the Federal Ministry of Finance in Germany requesting the law to be changed to allow for such an option.