18 August 1998 External T.I. 9807385 - TAXATION OF RETIREMENT INCOME TO AN EMIGRANT

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 taxation of certain Canadian source retirement income on emigration to the USA.

Position:

General explanations provided together with T4056 and T4058 and IT-193 SR.

Reasons:

General information was requested. Reply also explained new treaty provisions with respect to CPP receipts.

XXXXXXXXXX 980738
W. C. Harding
August 18, 1998

Dear XXXXXXXXXX:

Re: Tax Implications on relocation to the United States (“U.S.”)

This is in reply to your letter of March 18, 1998 regarding the above-noted topic.

In your letter you state that you are a U.S. citizen and a resident of Canada for over 21 years. You also indicate that you are now retired and are considering a return to the U.S.. With that in mind, you requested information on the possible tax implications of such a move.

Because your request relates to a contemplated move to the U.S., we cannot provide any specific answers to your questions at this time. Questions concerning the proper determination of the income tax consequences of proposed transactions may only be provided in the form of an advance income tax ruling and only where the ruling is requested in the manner set out in the Department’s Information Circular 70-6R3. However, we can provide general comments with respect to any Canadian taxation which may or may not be applicable to your situation but should be of assistance. Please note, however, that we cannot comment on the taxation by the U.S. and suggest you address any questions thereon to the United States Internal Revenue Service.

You first asked if it is possible to establish a U.S. Individual Retirement Account (“IRA”) and transfer RRSP amounts to it on a tax free basis. The answer is no. Canadian withholding tax will be required on any withdrawals from the RRSP and the rate of withholding will be dependent on the amount of the withdrawal and your country of residence at the time of the withdrawal. If after leaving Canada the amount is withdrawn in a lump sum, the withdrawal will be subject to a 25% withholding tax. If it is withdrawn as a series of periodic payments, the withholding will be 15%. There is no additional provincial tax withheld. In either case a Canadian tax return is not required. However, as explained in the enclosed booklet Emigrants and Income Tax, you may elect to file a tax return if it is to your benefit. If you do intend to file a tax return you may also request the amount of non-resident withholding tax be reduced as explained in the booklet.

If the amounts are withdrawn while you are resident in Canada, the rate of withholding on lump sum amounts will depend on the amount of the payments. Except in Quebec the federal rates are:

• 10% for payments of $5,000 or less;
• 20% for payments over $5,000 and up to $15,000; and
• 30% for payments greater than $15,000.

There is no withholding on periodic annuity payments made from an RRSP during the lifetime of the annuitant.

In the year of departure a Canadian individual tax return may be required if you owe any tax.. If a return is not required in the year of departure, one may be filed if it is to your advantage to do so. Please refer to the enclosed Booklet for more information on this.

With respect to Canada Pension Plan amounts received by a resident of the U.S., the affect of the recently announced amendment to the Canada-U.S.A. Tax Convention will mean these payments will only be taxable by the U.S.

In the year of departure, the number of days you spend in Canada will have an effect on the income reported in any Canadian income tax return. After the year of departure, the number of days you are in Canada will not generally have any implication so long as you are not considered a resident in Canada at the time and the number of days you were in Canada during a year does not exceed 182 days. Please refer to the enclosed documents relating to temporary residents for further information in this respect.

We trust these comments will be of assistance

Yours truly,

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