1 June 2004 External T.I. 2004-0065161E5 - Rollover of 401(k) or 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.

Principal Issues: 1) Can a taxpayer transfer her benefit from a U.S. 401(k) plan to her RRSP on a tax-deferred basis? 2) Can a taxpayer transfer a 401(k) benefit to a U.S. IRA and then transfer the IRA benefit to her RRSP on a tax-deferred basis?

Position: Question of fact, but subject to meeting the conditions in the Act, yes. General comments provided.

Reasons: 1) A 401(k) plan is accepted by the Agency as a US retirement or pension plan. As such, it can qualify for the roll-over treatment available under subparagraph 60(j)(i) provided the conditions described therein are met. 2) An IRA is a "prescribed plan" under section 6803 of the Regulations. As such, subject to satisfying the conditions described in the definition of "eligible amount" in section 60.01 it can qualify for the roll-over treatment available under subparagraph 60(j)(ii).

2004-006516
XXXXXXXXXX Renée Shields
(613) 948-5273
June 1, 2004

Dear XXXXXXXXXX:

Re: Rollover of a U.S. retirement plan to a registered retirement savings plan ("RRSP")

This is in response to your letter of February 24, 2004 inquiring whether a taxpayer can transfer an amount from a U.S. retirement plan to her RRSP on a tax-deferred basis. The Quebec City Tax Services Office forwarded your letter to the Income Tax Rulings Directorate for reply.

You have asked whether a Canadian resident can transfer amounts from a US 401(k) plan to an RRSP on a tax-deferred basis. Alternatively, you have asked whether an amount transferred from a 401(k) plan to a U.S. individual retirement arrangement ("IRA") can be transferred to an RRSP on a tax deferred basis.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). Any publications referred to herein can be accessed on the CRA website at the following internet address: http://www.cra-arc.gc.ca/formspubs.

Transfer from a 401(k) plan to an RRSP

The CRA considers a 401(k) plan to be a U.S. pension plan and as such, the gross amount (i.e. before any U.S. non-resident withholding taxes) paid from a 401(k) plan is taxable to the recipient (the "Taxpayer") under subparagraph 56(1)(a)(i) of the Income Tax Act (the "Act"). However, pursuant to subparagraph 60(j)(i) of the Act, subject to the satisfaction of certain conditions, the foregoing income inclusion may be offset by a deduction to the extent that amounts are contributed to the Taxpayer's RRSP in the year or within 60 days after the end of the year.

To qualify for the offsetting deduction, the amount received from the 401(k) plan must be attributable to services rendered by the Taxpayer (or his or her spouse or common law partner) during a period in which that person was not resident in Canada. In addition, the amount paid into the Taxpayer's RRSP must be designated as a transfer in Schedule 7 of the Taxpayer's T1 return for the year.

Transfer from an IRA to an RRSP

Pursuant to the definition of "foreign retirement arrangement" ("FRA") at subsection 248(1) of the Act and section 6803 of the Income Tax Regulations, an IRA described in section 408(a) of the Internal Revenue Code of the United States is considered an FRA for purposes of the Act. The gross amount paid out of an FRA is included in the recipient's income pursuant to clause 56(1)(a)(i)(C.1) of the Act.

In circumstances in which a payment from an FRA qualifies as an "eligible amount" the income inclusion under clause 56(1)(a)(i)(C.1) of the Act can be offset by a corresponding deduction under subparagraph 60(j)(ii) of the Act to the extent of the amount contributed to the Taxpayer's RRSP in the year or within 60 days after the end of the year. As above, the amount must be designated as a transfer on the Taxpayer's T1 return for the year. For the FRA benefit to qualify as an "eligible amount," all of the following conditions must be met:

? the amount must be included in the Taxpayer's income pursuant to clause 56(1)(a)(i)(C.1);
? the amount must be received from the FRA as a lump sum payment and not as part of a series of periodic payments, and
? the amount must have been derived from contributions made to the FRA by the Taxpayer (or his or her spouse or common law partner).

Where amounts are transferred from a 401(k) plan to an IRA at the direction of the Taxpayer, we consider that the amount satisfies the third condition, above.

We trust that these comments will be of assistance.

Yours truly,

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch