2000 Ruling 2000-0014633 - Transfer from 401(k) to IRA to RRSP

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Will we accept the transfer of an amount from a 401(k) plan that does not qualify for 60(j)(i) to an IRA that qualifies for 60(j)(ii) followed by the subsequent transfer to an RRSP?

Position: Yes.

Reasons: Nothing preventing the transfer in the Act and not offensive from a policy perspective.

XXXXXXXXXX
XXXXXXXXXX 2000-001463
XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sir:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Individual") XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

We understand that, to the best of your knowledge and that of the Individual, none of the issues involved in the ruling request

(i) is in an earlier return of the Individual or a related person,

(ii) is being considered by a tax services office or tax centre in connection with a previously filed tax return of the Individual or a related person,

(iii) is under objection by the Individual or a related person,

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(v) is the subject of a ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. The Individual is XXXXXXXXXX years of age. He is a Canadian citizen and a resident of Canada. His address is XXXXXXXXXX.

The Individual files his tax returns with the XXXXXXXXXX Tax Centre and he resides within the area served by the XXXXXXXXXX Tax Services Office.

2. The Individual was a former employee of XXXXXXXXXX (the "Employer") in XXXXXXXXXX. The Individual commuted daily from his Canadian residence to his workplace until his retirement on XXXXXXXXXX.

3. The Individual participated in the XXXXXXXXXX (the "Plan") which qualified under section 401(k) of the Internal Revenue Code (the "Code"). Under the terms of the Plan, the Individual contributed a percentage of his salary and wages to the Plan and the Employer matched the Individual's contributions to the Plan. From XXXXXXXXXX, the Individual contributed XXXXXXXXXX % of his salary and wages to the Plan. Subsequent to XXXXXXXXXX, the Individual contributed XXXXXXXXXX% of his salary and wages to the Plan.

4. In XXXXXXXXXX ("Controlco") acquired control of the Employer. Effective XXXXXXXXXX, the Plan was renamed the Controlco Capital Accumulation Plan. On XXXXXXXXXX, the Plan was merged with the Controlco Savings Plan. At all times, the Plan qualified under section 401(k) of the Code.

5. As at XXXXXXXXXX, the Individual's entitlements under the Plan amounted to U.S. $XXXXXXXXXX. Under the Plan, the Individual can receive his entitlements in the form of periodic payments commencing no later than the year he turns XXXXXXXXXX or he can arrange to have a lump-sum payment to a U.S. Individual Retirement Account on a tax-deferred basis or to his own personal account on a taxable basis.

6. The Individual is not married and, as part of his estate planning, he plans to bequeath the bulk of his estate to a number of Canadian registered charities.

Proposed Transactions

7. The Individual will open a new U.S. Individual Retirement Account (the "IRA") that will qualify as a foreign retirement arrangement within the meaning assigned by subsection 248(1) of the Act and section 6803 of the Income Tax Regulations.

8. The Individual will notify the administrator of the Plan that he intends to have his entire vested interest in the Plan transferred to his IRA. The transfer will be done on a tax-deferred basis under the Code.

9. The Individual will establish a registered retirement savings plan ("RRSP") and the Individual will be the annuitant under the RRSP.

10. The Individual will arrange for the withdrawal of the amounts held in his IRA in respect of the amount transferred from the Plan. The Individual will contribute the amount withdrawn from the IRA, net of U.S. withholding taxes, to his RRSP in the same year as the amount is withdrawn from the IRA or within 60 days after the end of the year that the amount is withdrawn from the IRA.

Purpose of the Proposed Transactions

11. The purpose of the proposed transactions is to allow the Individual to transfer his benefit entitlements under the Plan to his RRSP in order to avoid any complications that may arise under U.S. Estate Tax Administration for non-U.S. citizens.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are carried out as described herein, we rule as follows:

A. To the extent an amount transferred from the Plan to the IRA has to be included in the Individual's income for purposes of the Act, the amount included in the Individual's income as a result of the transfer from the Plan to the IRA will be deductible by the Individual under subparagraph 110(1)(f)(i) of the Act.

B. The amount transferred from the Plan to the IRA at the Individual's request will be considered a contribution to the IRA by the Individual for purposes of paragraph 60.01(b) of the Act.

C. The amount received, before any U.S. withholding taxes, by the individual out of the IRA (referred to in 10 above) will be included in the Individual's income under clause 56(1)(a)(i)(C.1) of the Act.

D. The Individual will be entitled to a deduction under paragraph 60(j) of the Act, to the extent permitted under that paragraph, for the contribution to his RRSP of the amount withdrawn from the IRA, as described in 10 above.

E. For purposes of the definition of "non-business-income tax" in subsection 126(7) of the Act, the withholding taxes described in 10 above will constitute an income or profits tax paid by the Individual to the Government of the United States.

F. The amount referred to in ruling C above will be "qualifying income" within the meaning assigned by subsection 126(7) of the Act.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information circular 70-6R3 dated December 30, 1996, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate