11 August 1998 External T.I. 9815125 - TAXATION OF IRAS RECEIVED OUT OF AN ESTATE.

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:

Taxation of IRAs and similar properties received by a Canadian beneficiary from the estate of a non resident.

Position:

We have asked the writer to obtain additional information. Amounts appear to be fully taxable on receipt by the Canadian beneficiary. However additional information on taxation of such receipts in the U.S.A. may be of importance in the determination of the issue.

Reasons:

Amounts out of IRAs and most other U.S. retirement savings schemes are taxable to Canadian residents as received. However, credits for U.S. taxes that are payable on the amounts may be available and additional information is required to determine this.

XXXXXXXXXX 981512
W. C. Harding

August 11, 1998

Dear Sir:

Re: Inheritance of Individual Retirement Accounts (“IRAs”) held in an estate

This is in reply to reply to your letter of June 4, 1998, in respect to the taxation of IRAs held in an estate.

As discussed during our telephone conversation of July 30, 1998 (XXXXXXXXXX - Harding) in order for us to provide information on the taxation of the property held in an estate or the taxation of amounts received out of an estate in circumstances such as yours, we will require additional information that you may be able to obtain from your advisors in the United States. In particular we need to know the following:

1. Schedule 1 provided with your letter indicates that the plans described in Items 1,2 and 3 are IRAs. However, there are several kinds of IRAs defined under the provisions of the United States Internal Revenue Code (the “Code”) and the Canadian taxation of these will depend on the type of IRAs held. This information may be indicated on the documents you have or may be available from your American financial advisor.

2. We understand that the United States financial institutions holding the IRAs have withheld non-resident tax on amounts you have withdrawn from certain of the funds and will withhold such taxes on any future withdrawals you make even though these amounts were previously taxed under the United States estate tax laws. Generally we would not have expected these amounts to be subjected to tax both within the estate and on their withdrawal from the plans. However, since this is not a Canadian tax issue it is not a matter we can address. Nevertheless, any clarification you might obtain on the issue could be of assistance to us. In any event, foreign tax credits should be available to you for any income taxes withheld in the United States on amounts received and reported as income on your Canadian tax return.

3. We would also like to receive any information you might be able to obtain from your financial advisors in respect of any options you may have for reporting this type of income in the United States and what the tax consequences would be under each option. As explained to you during our telephone conversation, under Canadian income tax law, non-residents may in some circumstances pay a non-resident withholding tax on amounts received from Canadian sources or elect to report the amounts in a Canadian income tax return. If similar options are available to you under the United States Code, it may be beneficial for you to do so for purposes of paying both United States taxes and Canadian taxes. For example, it may be possible for United States taxpayers to offset taxes payable under the Code on amounts received out of IRAs with United States estate taxes paid in respect of the IRAs. United States income taxes payable on the IRA receipts might then be available as foreign tax credits applicable to any amounts reportable in Canada.

Should your advisors wish to discuss any of these matters in order to clarify what we need. they may contact Mr. Wayne Harding at (613) 957-9769.

We trust these actions will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch