Regulation 6803

The taxpayer, a Canadian resident and U.S. citizen, received Cdn.$21,740 CAD as a distribution out of her deceased mother’s individual retirement account (the “US IRA”), which was included in the taxpayer’s US tax return in that year and taxed in the US.

In the course of rejecting various spurious arguments that this amount was not taxable under s. 56(1)(a)(i)(C.1), D’Auray J stated (at paras. 34-35):

Although the appellant agreed that the US IRA was a custodial account, she submitted that subsection 408(h) of the US Internal Revenue Code did not apply, since the conditions of subsection 408(a) were not met, namely that there was no evidence of trust indenture or instrument.

I have difficulty with the appellant’s position. Subsection 408(h) of the US Internal Revenue Code states that a custodial account shall be treated as a trust if the assets of such account are held by an approved person, and if the custodial account would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection 408(a). Accordingly, since the custodial account is not a trust, there is no need for a trust indenture or instrument as submitted by the appellant.