13 July 2004 External T.I. 2004-0071271E5 - Rollover from a US retirement plan to an 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: Can a taxpayer transfer an amount currently held in a US Retirement and Savings account to a Canadian RRSP?

Position: Possibly, question of fact but subject to meeting the conditions in paragraph 60(j).

Reasons: Based on the type of plan held by the taxpayer, a 401(k) plan, as an accepted US retirement or pension plan would qualify for rollover treatment pursuant to subparagraph 60(j)(i) provided the conditions described therein were met. Also, an Individual Retirement Account (an IRA), as a prescribed plan, may also qualify for rollover pursuant to subparagraph 60(j)(ii) and subject to the definition of "eligible amount" in section 60.01.

XXXXXXXXXX
2004-007127
July 13, 2004 Kimberly Duval
(613) 957-8982

Dear XXXXXXXXXX:

Re: XXXXXXXXXX U.S.A. Retirement and Savings Plan

This is in response to your letter of April 2, 2004 wherein you requested our opinion with respect to the possibility of transferring funds from a U.S.A. Retirement and Savings Plan to a Canadian registered retirement savings plan ("RRSP") on a tax-deferred basis.

Our Comments

The particular situation outlined in your letter relates to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, Advanced Income Tax Rulings, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advanced Income Tax Ruling. When a situation involves a specific taxpayer and a completed transaction, all relevant facts and documentation should be submitted to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments that may be of assistance. Note that all publications referred to herein can be accessed on the Canada Revenue Agency ("CRA") website at the following address: http://www.cra-arc.gc.ca/formspubs.

Depending on the type of the particular U.S retirement plan you have, there may be circumstances whereby the funds may be transferred on a tax-deferred basis into an RRSP. We are not in a position to provide our opinion as to the specific type of foreign arrangement you currently hold, but we can provide you with our general comments with respect to some of the more common types of retirement plans in the U.S., namely a 401(k) plan and a U.S. Individual Retirement Account ("IRA"). Whether the particular plan you have with XXXXXXXXXX is a 401(k) plan, an IRA or some other form of retirement arrangement in the U.S, would be a question of fact.

Direct 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 and subject to the satisfaction of certain conditions, the foregoing income inclusion may be offset by a deduction to the extent of the amounts that are contributed to the Taxpayer's RRSP in the year or within 60 days after the end of the year.

Generally, to qualify for the offsetting deduction under subparagraph 60(j)(i) of the Act, the amount received from the 401(k) plan must be a lump sum amount attributable to services rendered by the Taxpayer (or his or her spouse or common-law partner, or former spouse or common-law partner) during a period in which the 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 personal income tax return for the year.

Transfer from an IRA to an RRSP

Pursuant to the definition of "foreign retirement arrangement" ("FRA") in subsection 248(1) of the Act and section 6803 of the Income Tax Regulations, an IRA described in 408(a) of the Internal Revenue Code of the United States is considered an FRA for purposes of the Act. Therefore, the gross amount paid out of an FRA is included in the Taxpayer'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", this income inclusion may 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 with transfers from a 401(k) plan, the amount contributed to the RRSP from an IRA must also be designated as a transfer on the Taxpayer's income tax return for the year.

For an FRA benefit to qualify as an "eligible amount", all of the following conditions must be met:

o the amount must be included in the Taxpayer's income pursuant to clause 56(1)(a)(i)(C.1) of the Act;

o the amount must be received from the FRA as a lump-sum payment and not as part of a series of periodic payments;

o the amount must have been derived from contributions made to the FRA by the Taxpayer or the Taxpayer's 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.

Should you require further information with respect to an RRSP and eligible transfers, please refer to our income tax guide T4040, RRSP and Other Registered Plans for Retirement 2003. We trust 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