Regarding the deductibility of a contribution made to a 401(k) plan by a cross-border employee (with a hybrid work arrangement) who exercises a portion of the duties of employment from Canada, the Directorate referenced the rule in Art. VIII:10 of the Canada-U.S. Treaty requiring that the contributions be attributable to services “performed” by the individual in the U.S., and then stated:
The amount of the 401(k) contributions for a year that is deductible in computing taxable income in Canada generally equals the proportion of the total of such contributions that is equivalent to the proportion of the number of working days that is attributable to the related employment services performed by the cross-border employee for that employer while physically present in the U.S.
The Directorate also noted that Art. VIII:11 essentially limited the 401(k) deduction to the individual’s RRSP contribution room.