6 April 1990 Income Tax Severed Letter AC59788 - Income Earned under Trusted IRA's

19(1)                                             5-9788
                                                  A.B. Adler
                                                  (613) 957-8962

April 6, 1990

19(1)

This is in reply to your letter dated March 7, 1990, and is further to the letter dated July 18, 1988 from our Reorganizations and Non- Resident Division, concerning the Canadian income tax treatment of income earned under trusteed IRA's.

For your information, prior to the preparation of this Department's July 18, 1988 letter your situation and that of other taxpayers in similar circumstances were reviewed by senior management in this Department and by the Department of Justice, and discussions were held with officials of the Department of Finance. The decision made represents our interpretation of the existing provisions of the Income Tax Act (the "Act").

Our comments concerning the three specific issues raised by you follow.

1. The issue of equity in taxing the full income earned in a trusteed IRA on an annual basis in a case where a taxpayer made all the contributions thereto concerns tax policy and as such is the responsibility of the Department of Finance. Should you wish to pursue this issue further we suggest that you write to the Tax Policy and Legislation Branch, Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A OG5.

Further, as indicated in schedule 1 to the 1989 Individual Income Tax Return for residents of Ontario, taxable income is generally subject to the federal surtax and to Ontario income tax.

2. It is necessary under the Act for a taxpayer who is a resident of Canada to report foreign source income in Canada funds each year. Generally, currency fluctuations are regarded as a normal risk of investing outside Canada and are of consequence for income tax purposes solely in determining a taxpayer's income (or loss) from a particular investment.

3. Please refer to our comments under 1 above concerning the issue of equity and the income tax treatment of income earned in a trusteed IRA.

Concerning your decision to begin withdrawing funds from the IRAs on the of a 15 year amortization schedule, we suggest that you review the Canadian and U.S. income tax implications of this option with a financial advisor. Since our role is interpretive rather than advisory we are not in a position to advise you with respect to your options.

We trust that our comments will be of sufficient for your purposes.

Yours truly, for Director Financial Industries Division Rulings Directorate