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 The amounts in his IRA were not subject to further U.S. income tax when actually withdrawn (the “Withdrawal”).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.