2 May 1995 External T.I. 9502605 - FOREIGN RETIREMENT ARRANGEMENTS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

The taxpayer wanted to know what happened on the rollover of a 401(k) plan to an IRA to an RRSP or RPP

Position TAKEN:

Gave him the general position on the rollover rules. We did not comment on the tax consequences of the Canadian resident on the 401(k) plan- that is how the contributions and receipts are taxed in Canada as the question dealt with the 401(k) plan that had been transferred to an IRA

Reasons FOR POSITION TAKEN:

		5-950260
XXXXXXXXXX	M.P. Baldwin

Attention: XXXXXXXXXX

May 2, 1995

Dear Sirs:

Re: Foreign Retirement Arrangements and U.S. Individual Retirement Accounts ("IRA")

This is in reply to your letter of January 24, 1995 in which you request a technical interpretation on the rollover rules pursuant to section 60.01 of the Income Tax Act (the "Act") with respect to a lump sum payment out of a U.S. IRA into a registered retirement savings plan ("RRSP").

A foreign retirement arrangement ("FRA") is defined in subsection 248(1) of the Act as a "prescribed plan or arrangement". Section 6803 of the Income Tax Regulations (the "Regulations") provides that an IRA referred to in 408(a), (b), or (h) of the Internal Revenue Code of the U.S. is an FRA.

Pursuant to clause 56(1)(a)(i)(C.1) of the Act a taxpayer is required to include in income certain amounts received out of an FRA. This amount has to be included in the taxpayer's income in the year in which the taxpayer receives it and would be considered to be a superannuation or pension benefit for Canadian tax purposes.

Pursuant to subparagraph 60(j)(ii) of the Act, a taxpayer may be able to transfer certain amounts that are included in the taxpayer's income for the year to an RRSP or registered pension plan. One such amount for the year is the amount determined under section 60.01 of the Act, which provides that an amount received by a taxpayer from an FRA is an "eligible amount" if all of the following conditions are met:

1. the amount must have been included in the taxpayer's income for the year received pursuant to clause 56(1)(a)(i)(C.1) of the Act;

2. the amount cannot be part of a series of periodic payments. In other words, it has to be a lump-sum payment; and

3. the amount must have been derived from contributions made to the IRA by either the taxpayer or the taxpayer's spouse or former spouse.

With respect to 3 above, an IRA lump sum payment that was derived from an amount transferred to the IRA from a U.S. pension plan at the direction of the taxpayer, or the taxpayer's spouse or former spouse satisfies the requirement that the lump sum must have been derived from contributions made to the IRA by such a person. As such, a lump sum payment from an IRA is an "eligible amount" if it is in respect of an amount from a U.S. pension plan previously contributed directly or indirectly to the IRA.

The Department considers that a 401(k) plan is a U.S. pension plan.

The Department is also of the opinion that when a Canadian taxpayer inherits a lump sum payment out of an IRA, the amount is taxable pursuant to clause 56(1)(a)(i)(C.1) of the Act. However, no part of the lump sum payment is an "eligible amount" for purposes of paragraph 60(j)(ii) of the Act. Although the payment has been included in income pursuant to clause 56(1)(a)(i)(C.1) of the Act, and is not part of a series of periodic payments, it is not derived from contributions the taxpayer or the taxpayer's spouse or former spouse made to the IRA. Consequently, it does not satisfy all the requirements under section 60.01 of the Act to be considered an "eligible amount".

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch