Dear German Pension recipient,
Since 2005, the German government is charging taxes on the German pensions paid to Non-residents of Germany. The taxable amount is 50% of the pension amount, where the other 50% had to be included in the pensioners Canadian Tax return. The German/Canadian treaty was established to avoid double taxation.
The recipient of German Pensions has to pay taxes to the German Tax Department (Finanzamt Neubrandenburg). The Pension recipient may be exempt from paying taxes if 90% of their world income on line 15000 on the Canadian Tax return is from Pensions. If that is the case, you need to communicate that as “unbeschränkt Steuerpflichtiger” via the reply letter (Exhibit 1)
If you have other income in addition to pension income on line 15000 on the Canadian Tax return and want to charged German taxes only on the German Pension received, you need to indicate “beschränkt Steuerpflichtiger” and you will receive an invoice/bill from the Finanzamt Neubrandenburg (Exhibit 2).
For pensions which begin after 2005, the percentage that is non-taxable in Canada is set in the year the pension starts, see chart below:
Essentially pensions that begin in 2040 will be 100% taxable in Canada.
German pensions and their exempt portions are often audited by the CRA. The taxpayer must provide the notice issued by the German social security administration, which states when the pension was started. Look for the sentence that reads: “Die Rente beginnt am 01.05.2015” or “mit einem Rentenbeginn am 01.05.2015” (Exhibit 3)
If you have any questions, please contact the office. Daniela Barber speaks, reads and writes German and will be able to assist.