29 January 1990 Income Tax Severed Letter AC59142 - Canada-U.S. Income Tax Convention - Lump-sum Pension Payment

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.

• 5- 9142

19(1) A.B. Adler
(613) 957-8962

January 29, 1990

Dear Sirs:

This is in reply to your letter dated November 10, 1989 in which you requested our views whether the Canada-U.S. Income Tax Convention (1980) ("Convention") will provide relief to a taxpayer in the following scenario.

• An individual (assumed to be a resident of Canada) receives a lump sum pension payment from a U.S. corporation. The pension benefits accrued to the individual while he was employed in the U.S. During his employment period he lived both in the U.S. and in Canada. and while resident in Canada he commuted daily to his place of employment.

Specifically you wish to know whether the Convention would provide the taxpayer with relief should he roll the lump sum pension payment into a U.S. Individual Retirement Account ("I.R.A.").

It is our view that a lump sum payment received out of a U.S. pension fund or plan must be included in the income of a resident of canada. However, pursuant to paragraph 1 of Article XVIII of the Convention, we would allow a deduction from taxable income under paragraph 110(1)(f) of the Income Tax Act ("Act") for amounts rolled into an IRA provided those amounts would be excluded from income in the United States. It is our understanding that the U.S. presently provides for the exclusion of pension income for amounts rolled into an IRA. Further, for your information, where subsequently any amount in respect of the lump sum payment (including income earned thereon) is received by the resident of canada from his IRA that amount will generally retain its character as a pension benefit and will be includable in his income under paragraph 56(1)(a) of the Act.

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

Yours truly,

for Director
Financial Industries Division
Rulings Directorate

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