19 June 2000 External T.I. 2000-0031195 - IRA amount paid to child of contributor

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: How are amounts received by a taxpayer out of her father's U.S. IRA taxed in Canada?

Position: Included in income under 56(1)(a)(I)(C.1).

Reasons: U.S. IRA's under 408(a), (b) or (h) of the Internal Revenue Code are foreign retirement arrangements for purposes of the Act. Payments out of a foreign retirement arrangement are included in income under clause 56(1)(a)(I)(C.1) of the Act.

		June 16, 2000

	INTERNATIONAL TAX SERVICES OFFICE	HEADQUARTERS
	Elmer Leblanc	M.P. Sarazin
	Director 	824-5441
	Attention: Lucia DeAlmeida
		2000-003119

Taxation of U.S. Individual Retirement Account ("IRA") Receipts

We are writing to you in response to your round trip memorandum of June 6, 2000, concerning the taxation of amounts received out of an IRA by a Canadian resident (the "Taxpayer").

The Taxpayer is the beneficiary of her deceased father's IRA. The taxpayer has received a lump-sum payment out of the IRA and she is also receiving a series of periodic payments out of the IRA. The Taxpayer has requested your views on how the amounts received will be taxed in Canada.

Comments

IRAs established pursuant to subsection 408(a), (b) or (h) of the Internal Revenue Code of 1986 are prescribed to be "foreign retirement arrangements" ("FRA") for purposes of the Income Tax Act (the "Act"). A recipient is required to include all amounts received out of or under a FRA as a superannuation or pension benefit (whether lump-sum or periodic payment) in his or her income under the provisions of clause 56(1)(a)(i)(C.1) of the Act. The amount of the lump-sum payment to be included in the recipient's income is the gross amount, before U.S. withholding and any applicable penalty taxes, paid out of the IRA. The determination of whether the particular IRA is an FRA is a question of fact.

Although subparagraph 60(j)(ii) of the Act provides for a deduction for an amount out of an FRA which is transferred to a registered retirement savings plan or registered pension plan, the roll-over is only available to a recipient who contributed to the FRA or that individual's spouse. Consequently, a child of the FRA contributor is not eligible to defer taxation in this manner.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613)994-2898. A copy will be sent to you for delivery to the client.

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate