17 October 2000 External T.I. 2000-0040385 - US PENSION IRA DEATH CDN BENEFICIARY

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: A resident of the United States has contributed to a U.S. pension plan and a U.S. IRA. On his or her death, the pension plan and the IRA make payments to a Canadian resident beneficiary. Will the payments made to a Canadian resident be taxable in Canada?

Position: Yes.

Reasons: The pension payments are taxable under subparagraph 56(1)(a)(i) of the Act and the IRA payments are taxable under clause 56(1)(a)(i)(C.1) of the Act.

XXXXXXXXXX 2000-004038
M. P. Sarazin
Attention: XXXXXXXXXX

October 17, 2000

Dear Sirs:

Re: Canadian Beneficiary of Deceased U.S. Resident's Pension Plan and IRA

This is in reply to your letter of July 29, 2000, requesting our views regarding the taxation of amounts received by a Canadian resident ("Recipient") from a U.S. pension plan and a U.S. individual retirement arrangement ("IRA") because of the death of a resident of the United States where the Recipient was the deceased person's designated beneficiary in the plans.

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R3 (copies of information circulars and interpretation bulletins are available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Consequently, we can only provide you with the following general comments.

IRAs established pursuant to subsection 408(a), (b) or (h) of the Internal Revenue Code of 1986 are prescribed to be "foreign retirement arrangements" ("FRA") for purposes of the Income Tax Act (the "Act"). A recipient is required to include all amounts received out of or under a FRA as a superannuation or pension benefit (whether lump-sum or periodic payment) in his or her income under the provisions of clause 56(1)(a)(i)(C.1) of the Act. This provision applies to all amounts received out of or under an FRA, including amounts received as a named beneficiary under the FRA. The amount of the payment to be included in the recipient's income is the gross amount, before U.S. withholding and any applicable penalty taxes, paid out of the IRA. The determination of whether the particular IRA is an FRA is a question of fact.

For purposes of the Act, the term "superannuation or pension benefit" is defined under subsection 248(1) of the Act to include any amount received out of or under a superannuation or pension fund or plan and any payment made to a beneficiary under such a plan or fund in accordance with the terms of, or resulting from the amendment or termination of, the plan or fund. You will find the Canada Customs and Revenue Agency's general views regarding superannuation or pension benefits in Interpretation Bulletin IT-499R titled "Superannuation or Pension Benefits". Paragraph 9 of IT-499R states that "a pension received by a resident of Canada out of an unregistered foreign superannuation or pension plan is subject to tax in the same way as a pension received from a source in Canada under subparagraph 56(1)(a)(i) unless exempted by the provisions of a tax treaty." Consequently, a recipient is required to include all amounts received out of or under a foreign pension plan as a superannuation or pension benefit (whether lump-sum or periodic payment) in his or her income under the provisions of clause 56(1)(a)(i) of the Act.

Although there is nothing in your letter to indicate that the pension plan in question would be considered a retirement compensation arrangement or an employee benefit plan for purposes of the Act, note that where this is the case the tax consequences to the designated beneficiary will differ.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate