| 19(1) | 5-913264 |
| D. Duff | |
| (613) 957-8953 |
January 23, 1992
Dear 19(1):
This is in response to your letter of July 21, 1991 requesting information on the transfer of Individual Retirement Accounts ("IRAs") and lump sum pension commutation payments from the U.S. to a Canadian registered retirement savings plan ("RRSP"). Our information indicates that the technical term for the IRA is an Individual Retirement Account, however, you have referred to it as an Investment for Retirement Account. We assume we are referring to the same thing.
Your wife can transfer a lump sum payment from her pension plan to a RRSP pursuant to paragraph 60(j) of the Income Tax Act of Canada ("Act") provided it meets the criteria therein. Subparagraph 56(1)(a)(i) of the Act would first apply to require the recipient to include such a payment in income in the year of receipt. Paragraph 60(j) of the Act permits a deduction for the amount of a lump sum pension payment transferred to a RRSP in the year of receipt or within 60 days after the end of the year provided that the pension is attributable to services rendered during a period throughout which the recipient was not resident in Canada. There is no need to go through an intermediary IRA for this deduction.
The Act has recently been amended to permit a deduction for the transfer of some IRAs into a RRSP. A new term, Foreign Retirement Arrangement, has been inserted in subsection 248(1) of the Act and is defined to be a plan as prescribed by the Income Tax Regulations. Although the regulations have not yet been passed it is expected to prescribe IRAs referred to in subsections 408(a), (b) and (h) of the U.S. Internal Revenue Code as Foreign Retirement Arrangements.
Provisions similar to those applying to the treatment of the lump sum pension payments referred to above have been added to permit similar treatment for the Foreign Retirement Arrangements. Payments received from such arrangements after July 13, 1990 must be included in the income of the recipient pursuant to clause 56(1)(a)(i)(C.1) of the Act. A combination of paragraph 60(j) and section 60.01 of the Act permits a deduction for such of these payments that were lump sum payments and were transferred to a RRSP in the year of receipt or 60 days thereafter. Furthermore, the deduction is only allowed for amounts received from the arrangement to the extent that they were derived from contributions made to the arrangement by the recipient or his spouse. Consequently, if your employer funded the IRA, amounts received from it that were derived from those contributions could not be transferred tax free to a RRSP. Also, periodic payments from an IRA cannot be transferred tax free to a RRSP.
We trust this information is helpful and we apologise for the delay in responding.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate