22 August 1986 Income Tax Severed Letter 7-0816 - []

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.

G. Thornley (613) 957-2130

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August 22, 1986

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This is in reply to your letter of June 10, 1986 which was forwarded to us by the Belleville District Office for reply.

You advise that you are U.S. citizens who are resident in Canada. In 1986 you intend to cash-in some of your U.S. Individual Retirement Accounts ("IRAs"). It is your understanding that the receipt of a collapsed IRA by a Canadian resident is exempt from Canadian income tax. You ask if this is correct.

Our Comments

In our view payments received by a Canadian resident out of an IRA will be subject to tax in Canada pursuant to paragraph 56(1)(a) of the Income Tax Act.

We are of the further view that payments out of an IRA are included in the definition of "pensions" in paragraph 3 of Article XVIII of the Canada-U.S. Income Tax Convention (1980) ("the Treaty"). The term "pensions" therein includes any payment "under a ... retirement plan ...". Paragraph 2 of Article XVIII of the Treaty indicates that periodic pension payments may be subject to a withholding tax of up to 15% in the U.S. This limit on withholding does not apply with respect to lump sum payments under a retirement plan. In any event you may be entitled to a foreign tax credit on your Canadian income tax return, the details of which are contained in the tax guide accompanying your annual return.

As the payments are being made from the U.S., we suggest you contact the Internal Revenue Service (IRS) to confirm if such payments are in fact subject to withholding and, if so, the rate of withholding.