If you are a non-resident of Germany, you are only taxable in Germany on your income from sources in Germany and you are not entitled to claim any personal allowances to reduce your tax liability. You may, however, be able to elect to be treated as if you were a resident of Germany and benefit from certain allowances.
You will be required to report your income from all sources (both inside and outside of Germany), if you elect to be treated as a resident of Germany. You are not taxable on your income, from all sources, but this will be taken into consideration to determine the tax rate that will be used to calculate your tax liability on your income from sources in Germany.
Currently German tax law does not require tax to be withheld from social security pensions Germany pays to residents of Canada. German tax law generally requires filing a tax return. However, the German tax administration has introduced a simplified procedure for non-residents who receive a pension from Germany.
Non-residents can file a German tax return, under this process, but filing is no longer mandatory. The Germany tax office will assess non-resident pensioners based on the pension they receive and will send the pensioners a notice of assessment together with a reply slip if a tax return is not filed. The pensioners can use the reply slip to object to the assessment or to apply for an amendment of the notice of assessment. If residents of Canada choose to send a reply slip before receiving the German notice of assessment, the German tax office will assess their tax owing based on the information they give in their reply slip
You can only make the election if your taxable income in Germany represents at least 90% of your income from all sources or if your income that is not subject to German tax is less than the basic personal allowance in Germany. In calculating your income from all sources, the portion of your Old Age Pension (OAS), Canada Pension Plan (CPP), and Quebec Pension Plan (QPP) that would be taxable in Germany if you were a resident in Germany, is determined in the same manner as the taxable amount of your German social security pension.
If you decide to make the election available under the German law to be treated as if you were a resident of Germany, you will need to fill out a Non-EU/EEA Certificate, and then send it to the CRA to get a certificate of residency and a statement of your income, and attach these documents to your non-resident German tax return or reply slip. The certificate is required only if you meet the 90% test or if your income that is not subject to German tax is below the basic personal allowance for the particular year and you make the election. You can also make the election by filing a resident tax return.
It should be noted that a tax return for a particular year in Germany must be filed by the due date of the following year. Once your return is processed by the German tax authorities, a notice of assessment showing your German tax liability will be issued by the German tax office. You should keep the notice for your records, since you might be asked to prove to the CRA how much German tax you paid.
McFarland Associates are experts in this area. Please contact us for any support that you may require.
How to report the pension in Canada
The amount of German social security pension that is taxable in Germany is the same amount that will be taxed in Canada. You must include the full amount of pension received on line 115 of your Canadian tax return and claim a deduction of the non-taxable amount on line 256.
To eliminate double taxation on your German social security pension, you may claim a foreign tax credit against the tax otherwise payable in Canada for the tax paid to the German tax authority. You can claim a foreign tax credit by filling out Form T2209, Federal Foreign Tax Credits.
If you have already filed a Canadian tax return, you will need to request a reassessment of your Canadian tax return once you have received your notice of assessment for the German tax payable. Contact your local tax services office to request a reassessment of your Canadian tax return to allow your eligible claim for any foreign tax credit.
You can find more information on how to request a reassessment.