25 June 1986 Income Tax Severed Letter 5-1538 - []

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.

XXXX K. Harding (613) 957-2129

June 25, 1986

XXXX

This is in reply to your letter of April 30, 1986 concerning the treatment of amounts received out of an Individual Retirement Account (IRA).

You requested our opinion on the following questions.

1. How would Revenue Canada tax a Canadian citizen and resident who is in receipt of annuity payments (equal monthly installments over a five-year period) out of an IRA in the U.S.?

2. Do the above-described receipts qualify as annuity payments for the purpose of the Canada-U.S. Income Tax Convention (1980) (Convention) and the reduced rate of withholding tax or are they excluded from the definition of "annuity" by virtue of paragraph 4 of Article 18 of the Convention? If they are not annuity payments for Convention purposes, under what article of the Convention would these payments fall?

We will reply to your questions in the order in which they were presented.

1. It is our view that eligible annuity payments received by a Canadian citizen and resident out of an IRA will be subject to tax in Canada pursuant to paragraph 56(1)(a) of the income Tax Act. However, our Department is presently reviewing its position with respect to IRAs, Keogh plans, rollovers by Canadian residents from a U.S. pension fund to IRAs and other related problems with Article XVIII of the Convention.

2. We are of the opinion that eligible annuity payments out of an IRA will not fall within the definition of "annuities" as defined in paragraph 4 of Article XVIII of the Convention since it is a retirement plan and is included in the definition of "pension" in paragraph 3 of the same Article. Since the annuity payments paid out of an IRA are of a periodic nature, paragraph 2 of Article XVIII would appear to indicate that such payments may be subjected to a withholding tax of up to 15 percent in the U.S. However, since the payments are being made from the U.S., you should contact the internal Revenue Service (IRS) to confirm if such payments are in fact subject to withholding and, if so, the rate of withholding.

You could contact the IRS by phone in Ottawa at (613) 236-5335 or write to them at the following address.

Internal Revenue Service 60 Queen Street, Suite 401 Ottawa, Ontario K1P 5Y7

We trust this is adequate for your purpose.

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch