A Canadian has taken court action in Germany to dispute the payment of taxes to the German government on the German Social Security Pension received by Germans living in Canada.
The German Tax Court ruled on Jan. 13, 2016 that the Canada-Germany Tax agreement does not allow Germany to tax the German Social Security Pension benefits received by residents of Canada. The case reference is Finanzgericht Mecklenburg-Vorpommern, Urteile vom 13, Januar 2016, 1 K 453/13 und 1 K 4/15.
Currently this ruling is under appeal by the tax authorities in Germany and until it is finally resolved, the German government will continue to assess taxes on the German Social Security Benefits.
So what does this mean for you? It is up to you whether or not you want to pay the tax assessed by the German government or wait for the final result. But be warned that if the decision is overturned, you could face some hefty fines and interest on the tax that you then owe.
If the decision is upheld, you will have the opportunity to file a notice of objection in Germany on your assessment. There is no prescribed form for this so you will need to draft a letter in German stating the reason for the objection and include the case reference (above) as well as a copy of your notice of assessment received from the German government.
Unfortunately, you only have one month after the date of the German assessment to file the notice of objection, and you will not be able to file for any previous years, just the current year. So, if you have recently made a payment, I would suggest that a notice of objection be filed immediately. Note that the tax continues to be due to the German government until your objection is resolved.
On the Canadian side, you are still required to include the pension received in your income on your T1 return because, as Canadians, we are taxed on world wide income and then receive foreign tax credits for any taxes paid in other countries. There is a percentage of the pension that is non-taxable depending on the year that you started to receive the pension.
If you have paid the tax to the German government for a prior year, and you have Canadian taxable income in that year, you can adjust your Canadian tax return for that tax year to receive a foreign tax credit for the tax paid to Germany.
The Canada Revenue website has more information on this issue and how to report the pension in Germany at ‘Additional information regarding the change to the taxation of German social security pensions.’ This website has a link to the German Taxation website for even further information.