Published: September 8, 2020
Last Updated: July 14, 2026
Many immigrants had a career before they moved to Canada and they might be eligible to receive a foreign pension from another country. Since Canadian residents are taxed on their worldwide income, new immigrants are often taken by surprise that their foreign pension payments could be subject to Canadian tax even though the amounts may not be taxable in the country paying the pension. To avoid this nasty surprise, it is important to seek proper legal assistance from an experienced tax lawyer in Canada.
Two things have changed since this article was first published that make the guidance below more important than ever: the Income Tax Act now offers a specific offsetting deduction for certain foreign pension transfers, added in 2023, and the CRA overhauled its Voluntary Disclosures Program effective October 1, 2025.
New immigrants are almost never surprised that they have to file a Canadian tax return; they’re surprised that Canada wants a piece of a pension they already considered settled business back home, says David J. Rotfleisch, a Certified Specialist in Taxation. The tax treaty is often the only thing standing between you and double taxation, and it has to be read carefully, line by line, against your specific pension plan.
David J. Rotfleisch, Canadian tax lawyer & founder, Rotfleisch & Samulovitch P.C.
How to report foreign pension income on your tax return
When foreign pension income is regarded as taxable income, it should be reported in Canadian dollars on line 11500 of the person’s T1 return. The pensioner can sometimes choose to receive the payments either in a lump sum or periodically. The former requires the pensioner to convert the foreign lump sum payment into Canadian dollars using the exchange rate on the day the payment went into the account, while the latter uses an average conversion rate during the period the person received those payments.
Foreign pension income reported on line 11500 is generally treated as eligible pension income and can qualify for the pension income amount on line 31400, a non-refundable tax credit worth up to $2,000, depending on the type of pension and the recipient’s age. Also note that the averaging approach described above is a CRA administrative concession specific to pension income; for most other foreign currency amounts, section 261(1) of the Income Tax Act requires the spot rate on each individual transaction date rather than an average, a stricter rule explained in our guide to complying with the CRA’s spot rate requirement.
How to avoid double taxation
Since foreign pension income is sometimes taxable in the home country where it originates, a double taxation problem arises when it is taxed again in Canada. However, there are several methods to mitigate the effect of double taxation.
Tax treaties may set out specific rules or agreements that deem all or part of your pension income as non-taxable. For example, under the government service article of the Canada-UK tax treaty, a pension paid by the UK government for services rendered to the UK, such as a UK Civil Service or NHS pension, is generally taxable only in the UK and exempt from Canadian tax, unless the recipient is also a Canadian citizen. Therefore, it’s always a good practice to consult with a Canadian tax lawyer to review the specific provisions of the tax treaty. If the pension income is indeed exempt, you can claim a deduction for the amount on line 25600 of your tax return.
If the treaty doesn’t contain such exemption provisions, you may still reduce your tax burden by claiming foreign tax credits on the amount of tax you already paid for the pension income in another country. Under this scenario, you need to fill form T2209 Federal Foreign Tax Credit to calculate the credits, and report the amount on line 40500 of your income tax return.
A third mitigation method is also now available. Paragraph 60(j) of the Income Tax Act was amended, effective August 4, 2023, so that a lump-sum amount transferred from a foreign pension plan into your own RRSP, or now also your own Registered Retirement Income Fund (RRIF), may qualify for an offsetting deduction, to the extent the transferred amount is included in your income. This can matter a great deal for taxpayers transferring a UK pension into a SIPP, or dealing with a foreign retirement compensation arrangement, where the interaction between domestic and foreign rules is especially fact-specific.
Most people don’t realize that transferring a lump-sum foreign pension into their own RRSP or RRIF can trigger an offsetting deduction, Rotfleisch notes. It’s a narrow provision, but for the right taxpayer it can eliminate most of the immediate tax hit, provided the transfer is structured correctly before the money moves, not after.
David J. Rotfleisch, Canadian tax lawyer & founder, Rotfleisch & Samulovitch P.C.
Leading cases on foreign pension income taxation
Let’s look at four cases that shed light on this issue.
Rasmussen v The Queen, 2019 TCC 124; [2019] 4 CTC 2157.
This case dealt with a former Queensland police officer in Australia who immigrated to Canada in 2013 after his retirement. During the time he was employed in Australia, both the police officer and his employer contributed to QSuper, a superannuation fund for Queensland government employees. Upon his retirement, he chose to receive pension payments periodically. In 2015, he received pension income of $60,963 and claimed a deduction for the same amount when he filed his 2015 tax return. After the Minister of National Revenue reassessed his 2015 tax return and denied the deduction, he appealed to the tax court.
After consulting the Income Tax Act, the tax treaty between Canada and Australia and case law, the judge ruled that his foreign pension income should be taxable in Canada. The court set out several reasons in its analysis:
- Under section 61(g) and 56(1) of the Income Tax Act, any payment received from a superannuation or pension benefits is generally considered taxable Canadian income even if it’s from a foreign pension plan.
- Although the Income Tax Act does not define what a superannuation or pension plan is, the court reviewed case law and found that a superannuation or pension plan is generally an arrangement that provides for payment of regular post-retirement income to former employees that is made in accordance to the terms of a plan rather than at the discretion of the beneficiary.
- The tax treaty between Canada and Australia also does not prohibit Canada from taxing the pension benefits received from the police officer’s Australian superannuation plan.
Reyes v The Queen 2019 FCA 7; [2019] 6 CTC 113.
This case involved a similar situation to the first case where a former Colombian worker, Mr. Reyes, moved to Canada in 2007 and became a Canadian resident. Mr. Reyes started receiving pension benefits from Colombia since 2014 and when he filed his income tax return in 2014 and 2015, he reported the pension income but deducted the same amount for both years. The Minister of National Revenue denied his deduction and the decision was upheld by the tax court, Mr. Reyes then appealed to the federal court of appeal.
After consulting the Income Tax Act and the tax treaty between Canada and Colombia, the federal court of appeal upheld the tax court’s decision that the deduction should be denied. The reasons are:
- The Colombian pension income was properly included as taxation income in Canada under Paragraph 56(1)(a) of the Income Tax Act.
- Under the tax treaty between Canada and Colombia, Canada is entitled to tax his Colombian pension benefits as the country of residence.
Mr. Reyes also argued that the “right to social security” from the Universal Declaration of Human Rights (UNDHR) and Article 9 of the International Covenant on Economic, Social and Cultural Rights (the “Covenant”) should prevent Canada from taxing his Colombian pension income. However, the Federal Court of Appeal ruled that neither of them “deal with taxation per se” and “could not have had any impact on the interpretation” adopted by the tax court.
Agrawal v Canada (Employment, Workforce Development and Official Languages), 2024 TCC 128.
This more recent decision arose in the Guaranteed Income Supplement context rather than a direct income tax appeal, but it applies the same principles as Rasmussen and Reyes. The appellant argued that his Indian pension, which he left in an Indian bank account and could only access on periodic visits to India, should be taxed only when actually brought into Canada. The Tax Court disagreed: the pension was included in his income the moment it was paid abroad and placed under his sole control, regardless of whether or when the funds were physically transferred to Canada.
Petcu v Canada (Employment, Workforce Development and Official Languages), 2023 TCC 155.
In this Guaranteed Income Supplement appeal, the Tax Court confirmed that bank fees and currency exchange costs paid to repatriate a Romanian pension to Canada cannot be deducted in computing income, and that the Bank of Canada exchange rate in effect on the day the pension was received was the correct conversion rate to use.
Unreported Foreign Pension Income: Voluntary Disclosure Program
If you have received offshore pension income that is not exempted, you should report them on your tax return. Failure to do so could lead to serious financial and legal consequences. In fact, Canada Revenue Agency (“CRA”) even offers a snitch line for people to report tax evaders and awards the informer a commission based on the amount of tax collected. Luckily, the Voluntary Disclosure Program (“VDP”) is designed for taxpayers to come forward with unreported income in exchange for relief from penalties, interest and criminal prosecution.
A Voluntary Disclosure application must meet the following requirements in order to be accepted:
- It must be voluntary;
- The information provided must be complete;
- The disclosed information must be one year past due;
- The information provided must be related to a penalty;
- You must provide payment for the estimated taxes owing.
However, whether the CRA decides to accept your Voluntary Disclosure application depends on the specific circumstances of your case. Therefore, it is highly recommended that you consult with an experienced Canadian tax lawyer if you have unreported pension income.
The five requirements above are still the current eligibility conditions. What changed effective October 1, 2025 is the relief available once you qualify: the CRA replaced its old single-tier structure with the two-track system below. See our full guide to the new VDP rules for complete details.
Track |
When It Applies |
Penalty Relief |
Interest Relief |
| Unprompted (general relief) | You apply before the CRA (or another authority) has contacted you about the issue, including before any general education letter. | 100% | 75% |
| Prompted (partial relief) | You apply after the CRA has flagged the specific issue or sent a letter identifying an error, but before an audit or investigation begins. | Up to 100% | 25% |
An unprompted application, made before the CRA has contacted you about the issue, is normally eligible for general relief: 100% relief of applicable penalties and 75% relief of applicable interest. A prompted application, made after the CRA has already flagged the issue but before an audit or investigation begins, is normally eligible only for partial relief: up to 100% relief of applicable penalties but only 25% relief of applicable interest. Under either track, an accepted application also gives protection from criminal prosecution and relief from gross negligence penalties. Applications are now made on a revised Form RC199, governed by Information Circular IC00-1R7.
The math changed in October 2025, Rotfleisch says. Waiting even a few months after you realize you have a problem can cost you fifty percentage points of interest relief, and the difference between full and partial penalty relief. If you have unreported foreign pension income, the time to deal with it is before the CRA writes to you, not after.
David J. Rotfleisch, Canadian tax lawyer & founder, Rotfleisch & Samulovitch P.C.
Pro Tax Tips: Foreign Pension Income
The situations in these cases are unfortunate, therefore it is critical for anyone receiving foreign pension income to seek professional advice from an experienced tax lawyer in Canada to minimize the tax burden on his foreign pension income. If you have unreported offshore pension income, contact our office to speak with one of our experienced Canadian tax lawyers about the Voluntary Disclosure Program (“VDP”). By participating in the VDP, you might be able to eliminate tax penalties, reduce interest and avoid criminal tax prosecution.
Frequently Asked Questions About Foreign Income Pension Taxation
Do I need to declare foreign pension income in Canada?
Yes. As a Canadian resident you must declare all foreign pension income on your tax return, regardless of how the tax ultimately works out once treaty relief or a credit is applied. The declaration obligation and the final tax result are two separate questions: you first report the full, gross pension amount as income on line 11500, and only afterward claim any available treaty exemption on line 25600 or foreign tax credit on line 40500. Simply assuming a pension is not taxable in Canada because of a treaty, and leaving it off your return entirely, is a common and costly mistake. As the cases discussed above confirm, the CRA and the courts have consistently required the income to be reported and any treaty relief to be claimed and proven, not merely assumed.
Is foreign pension income taxable in Canada?
Yes. Canadian residents are taxed on their worldwide income, so a foreign pension is generally taxable in Canada even if it is not taxed, or is taxed differently, in the country that pays it. Whether all, part, or none of it ends up taxable in Canada depends on the specific tax treaty between Canada and that country.
Where do I report foreign pension income on my tax return?
Report the Canadian-dollar equivalent of your foreign pension income on line 11500 of your T1 return, converting lump sums at the exchange rate on the day of payment and periodic payments at the average rate for the period.
How much of my foreign pension is tax-free in Canada?
It depends entirely on the tax treaty between Canada and the source country. Some treaties exempt all or part of a foreign pension, claimed as a deduction on line 25600; where no exemption applies, a foreign tax credit on line 40500, or in the case of certain lump-sum transfers the paragraph 60(j) deduction, may reduce or eliminate the double taxation.
What happens if I never reported my foreign pension income?
You may be able to apply under the CRA’s Voluntary Disclosures Program, which, since October 2025, offers materially different levels of penalty and interest relief depending on whether you apply before or after the CRA has contacted you about the issue. See the table above.
Do I have to report my foreign pension on Form T1135?
Generally, no. An interest in a trust governed by a genuine foreign pension or retirement plan is specifically excluded from the specified foreign property that triggers Form T1135, provided the plan is exempt from income tax where it is resident and exists to provide pension, retirement, or employee benefits. Once you are actively receiving distributions, or if the arrangement does not meet that test, the analysis can change, so this is worth confirming with a tax lawyer rather than assuming the exclusion applies.
Is my U.S. Social Security taxable in Canada?
Yes, but only partially. Under Article XVIII(5) of the Canada-U.S. tax treaty, only 85% of U.S. Social Security benefits paid to a Canadian resident are included in income, with the other 15% deducted on line 25600. A grandfathered rule allows only 50% inclusion for taxpayers who have received the benefit continuously as Canadian residents since before 1996.
Does foreign pension income affect my OAS clawback?
Yes. Foreign pension income reported on line 11500 forms part of your net income on line 23600, which is the figure used to calculate the OAS recovery tax, commonly called the clawback. For the 2025 income year the clawback begins once net world income exceeds $93,454, rising to $95,323 for 2026.
Can I avoid Canadian tax by leaving my pension in a foreign bank account?
No. Canadian residents are taxed on worldwide income as it is earned or becomes receivable, regardless of whether the funds are ever transferred into a Canadian account. As the Tax Court confirmed in Agrawal v Canada, 2024 TCC 128, a foreign pension is included in income once it is paid abroad and under the taxpayer’s control, even if it is left untouched in a foreign bank account and only accessed on a later visit to that country. Leaving the money abroad does not defer or eliminate the Canadian tax liability, and once the balance in that foreign account exceeds $100,000 CAD in cost at any point in the year, it can also create its own separate Form T1135 filing obligation, distinct from the pension plan itself.
What is the difference between a foreign pension plan and a foreign retirement compensation arrangement, or RCA?
A foreign pension plan is generally an employer- or state-sponsored arrangement providing regular post-retirement income under the terms of a plan. A retirement compensation arrangement is a specific Canadian tax concept for employer-funded, non-registered retirement arrangements, and a foreign arrangement that resembles an RCA can trigger its own reporting and withholding rules. Which category a specific foreign arrangement falls into can significantly change the result, and is worth having reviewed individually.
How far back can the CRA reassess unreported foreign pension income?
The CRA’s normal reassessment period is three or four years from the date of the original notice of assessment, but that limit does not protect a taxpayer who never reported the income, or where the CRA can establish misrepresentation attributable to neglect, carelessness, or wilful default; in those cases the CRA can reassess without any time limit. This is one of the reasons the Voluntary Disclosures Program can be so valuable for unreported foreign pension income.
Should I use a tax lawyer or an accountant to fix unreported foreign pension income?
Either can help with the numbers, but solicitor-client privilege does not extend to an accountant retained directly by the client. For a Voluntary Disclosures Program application, or any matter where the CRA could later seize records, the standard approach is for the client to retain a Canadian tax lawyer first, and for the lawyer to then formally retain the accountant on the client’s behalf. Because the accountant is engaged as the lawyer’s agent for the dominant purpose of providing legal advice, the accountant’s working papers and communications are brought under the lawyer’s solicitor-client privilege and generally cannot be compelled or seized by the CRA, whereas the same work done under a direct client-accountant engagement would not be protected. This is why our office formally retains the client’s accountant, or brings in our own, rather than simply working alongside an accountant the client retained independently.
Disclaimer: This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
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