Principal Issues: 1. Whether a taxpayer, who takes up Canadian residency and subsequently relinquishes his/her green card, is required to report on his/her Canadian tax return an amount deemed distributed to the taxpayer from an IRA account pursuant to the U.S. expatriation rules, and if yes, whether he/she is entitled to claim a foreign tax credit in respect of the U.S. tax paid on the deemed distribution. 2. Whether the taxpayer is required to report on his/her Canadian tax return an amount subsequently withdrawn from his/her IRA account after relinquishing the green card, and if yes, whether the taxpayer is entitled to a deduction in respect of that amount under subparagraph 110(1)(f)(i) of the Act.
Position: 1. The amount deemed distributed from the IRA account would be included in computing the income of the taxpayer under clause 56(1)(a)(i)(C.1). The U.S. tax paid on that amount would factor into the computation of a foreign tax credit under subsection 126(1), assuming all the conditions in that subsection were satisfied. 2. Assuming the amount subsequently withdrawn from the IRA account did not exceed the amount of the previous deemed distribution, the withdrawn amount would not be included in computing the taxpayer’s income in Canada under clause 56(1)(a)(i)(C.1)
Reasons: 1. Pursuant to subsection 56(12), the deemed distribution from the IRA account under the U.S. expatriation rules would be deemed received by the taxpayer as a payment out of the IRA for the purpose of paragraph 56(1)(a). The U.S. tax paid on the deemed distribution would qualify as “non-business-income tax” within the meaning of subsection 126(7). 2. Clause 56(1)(a)(i)(C.1) does not apply to an amount to the extent the amount would not be subject to income taxation in the U.S. if the taxpayer were resident in the U.S.