A Canadian citizen who was a U.S. long term resident under the U.S. expatriation rules was treated for Code purposes as receiving a distribution of his entire interest in his IRA (the “Deemed Distribution”) immediately before his relinquishing of his green card and returning.to Canada, to which he was subject to U.S. income tax. The amounts in his IRA were not subject to further U.S. income tax when actually withdrawn (the “Withdrawal”).
CRA first noted that 2017-0682301E5 essentially indicated that s. 56(12) deemed the Deemed Distribution to be includible in the taxpayer’s income under s. 56(1)(a)(i)(C.1) and that the Withdrawal would not be so includible if it did not exceed the Deemed Distribution (because it would not be “subject to income taxation” in the U.S. respecting s. 56(1)(a)(i)(C.1).
In finding that neither the Withdrawal nor the Deemed Distribution would support a deduction under s. 60(j) where a corresponding amount was contributed to the taxpayer’s RRSP, CRA stated:
[I]n order for it to qualify as an “eligible amount” within the meaning of section 60.01, the amount of the Withdrawal must be included in the Taxpayer’s income pursuant to clause 56(1)(a)(i)(C.1). Since it is the amount of the Deemed Distribution (not the Withdrawal) that is included in the Taxpayer’s income, the amount of the Withdrawal would not satisfy the criteria for being an “eligible amount”.
Furthermore, we note that, while the deeming rule in subsection 56(12) applies for the purposes of paragraph 56(1)(a), the rule does not apply for the purposes of section 60.01. As a result, the amount of the Deemed Distribution would also not satisfy the criteria for being an “eligible amount” as it is not a “payment received” for the purpose of section 60.01.
|Locations of other summaries||Wordcount|
|Tax Topics - Income Tax Act - Section 60 - Paragraph 60(j)||failure to qualify for 60(j) deduction where deemed withdrawal from IRA followed by actual withdrawal||157|
|Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) - Clause 56(1)(a)(i)(C.1)||deemed withdrawal from IRA rather than subsequent actual withdrawal included in income per s. 56(12)||225|
The taxpayer has two distinct Individual Retirement Accounts, each with a value of $200,000, and transfers one to the taxpayer's RRSP in 2013 and the other in a subsequent year.
In noting that such transfers would not be considered to occur as "part of a series of periodic payments," CRA stated (Tax Interpretations translation):
In general, the CRA considers that a series of periodic payments consists of at least three equal or similar payments made at regular intervals. In other words, a lump sum that is paid in two instalments can, as in this case, not constitute part of a series of periodic payments.
CRA went on to indicate that it would not make any difference if the two IRA's had, in turn, been created by two transfers of $200,000 out of a 401(k) plan with a value of $400,000.
In order to maximize Canadian foreign tax credits for the U.S. tax withheld, a Canadian resident withdraws the amounts in the individual’s IRA through partial surrenders occurring over a number of years. Do these qualify as not being made as “part of a series of periodic payments”?
Section 60.01 applies to a lump sum that is a one-time payment, which does not include each instalment that is made as part of a series of periodic payments to settle a particular lump sum.
Consequently … [such] payments … are part of a series of periodic payments and do not constitute an eligible amount within the meaning of section 60.01.
"In general, a periodic payment is one of a series of at least three equivalent payments made under an arrangement that specifies the interval between payments. It is our opinion that this definition would also be applicable to paragraph 60.01(a) of the Act. We are also of the view that the payment of a lump sum in instalments would not generally constitute a series of periodic payments."