Revenue Canada Taxation Head Office
K.B. Harding (613) 957-2129
JUL 18 1988
Dear XXXX
This is in reply to your letter of March 25, 1988 concerning the treatment of amounts received out of an Individual Retirement Arrangement (IRA) by residents of Canada.
You indicated that in many case situations that you are concerned with individuals who worked for a U.S. employer. Rather than having a pension plan established for individuals, funds were deposited by their employer into an IRA. During their working years, many of the individuals resided in Canada and filed Canadian income tax returns. When the individuals retire you are concerned with the treatment of the funds to be received out of the IRA by residents of Canada.
We have recently completed our review of the treatment of IRAs and we are attaching a copy of a general statement concerning the treatment of income received by a resident of Canada from various retirement plans in the United States.
With respect to the specific problem set out above, it would appear that you may he referring to a SEP-IRA or a 401(k) plan. If such is the case, it is our view that amounts received out of such plans will generally be treated as amounts being received out of an employee benefit plan and will be taxed when received out of the plan by virtue of paragraph 6(1)(g) of the Act.
Where individuals resided in Canada during the years in which the employer contributed into the plan the amounts received by the individuals are income under paragraph 6(1)(g) of the Act rather than pension income and such amounts are not eligible for a roll over into a RRSP.
However, such an individual would be granted a deduction with respect to amounts he contributed to the plan in accordance with subparagraph 6(1)(g)(ii) of the Act.
It is also possible that such plans may also qualify as a "retirement compensation arrangement" (RCA) or a "salary deferral arrangement" (SDA) as defined in subsection 248(1) of the Act. If such is the case the rules concerning RCA or SDA would be applicable rather than treating the amounts as being received from an employee benefit plan. We are not in a position to determine the nature of the payment without reviewing the actual arrangement.
We trust this information will be of assistance to you.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch