12 February 1990 Ruling 59491 F - Treatment of U.S. Pension Plan Rollovers to IRA

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.

February 12, 1990

Dear Sirs:

Your letter dated January 4, 1990, written on behalf of your client 19(1) and addressed to our Audit Division, was recently referred to this office for reply.

24(1)

Also, you referred us to our position re "Treatment of U.S. Pension Plan Rollovers to an IRA" as reported in the Report of the Fortieth Tax Conference of the Canadian Tax Foundation.

Unfortunately, we have not been able to locate the file with respect to your client's deferred compensation arrangement that you indicated was reviewed by this Department.  However, we did determine that his arrangement is not included in this Department's records as a registered pension plan for purposes of the Income Tax Act ("Act").

You requested our views, at an early date, 24(1) .

For your information we do not provide written opinions with respect to actual and completed transaction.  However, we are prepared to provide you with the following general comments.

We are not familiar with the grantor trust rules under section 671 of the Internal Revenue Code of 1986, and accordingly, we would not be in a position to provide you with our views concerning the application of such rules, even to a proposed transaction, at an early date.

Where property is transferred from a foreign corporation to a trust in respect of the corporation's unfunded liability under an unregistered foreign pension plan for the benefit (whether contingent or not) of its sole member who was a resident of Canada at all relevant times, we would generally view the transfer as a contribution to a retirement compensation arrangement ("RCA") as defined in subsection 248(1) of the Act. Further, when any amount is received by the member out of or under the RCA that amount would generally be required to be included in his income under paragraph 56(1)(x) of the Act. Since no amount would be includable in his income under subparagraph 56(1)(a)(i) of the Act when received by him then member would not be entitled to a deduction under paragraph 60(j) of the Act.

In order to claim an exemption under Article XVIII(1) of the Convention the onus of establishing that the amount of "pension" in question is in fact excluded from taxable income in the United States falls upon the resident of Canada who claims that exemption.  We suggest that you obtain appropriate written confirmation from the United States authorities and be prepared to support your client's 1989 claim for an exemption under Article XVIII(1) of the Convention.  You may wish to discuss this matter with officials at your client's local district taxation office prior to the filing of your client's 1989 income tax return.

We trust that our comments will be of assistance to you.

Note that we are forwarding copies of our correspondence to the Montreal district taxation office to facilitate their review of your client's affairs with respect to the deferred compensation arrangement and the U.S. grantor trust.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate