Contact UsI am a Canadian citizen and resident, and I recently received a payment out of a (conventional) IRA that my late uncle had. He was a US citizen, and named me as the beneficiary. US tax of 30% was withheld. Is the 30% US tax recoverable by me? I read that cross-border pension or retirement payments should only be subject to 15% tax under the tax treaty between the US and Canada. Will I be taxed on this in Canada too, and can I get credit for the Canadian tax?
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Tax Professional Answers
Michael Atlas, CPA, CA
The IRA would be considered a “pension”, for the purposes of Article XVIII of the Canada-US Tax Convention, because it is a type of “retirement arrangement”. The US can levy its full statutory tax rate of 30% on the payment. This is because of the fact that the reduced 15% rate provided under Article XVIII(2)(a) only applies to “periodic” payments-not a lump sum paid on death.
The payment is taxable in Canada under Clause 56(1)(a)(i)(C.1) of the Income Tax Act, since it is a payment out of a “foreign retirement arrangement”. As such, you must include the gross amount of it in your income. However, you can claim a foreign tax credit in Canada for the 30% US tax, subject to the fact that the amount you can claim will generally be limited to your average Canadian tax rate on all your income multiplied by the amount of the payment out of the IRA.
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512 weeks ago
The payment is taxable in Canada under Clause 56(1)(a)(i)(C.1) of the Income Tax Act, since it is a payment out of a “foreign retirement arrangement”. As such, you must include the gross amount of it in your income. However, you can claim a foreign tax credit in Canada for the 30% US tax, subject to the fact that the amount you can claim will generally be limited to your average Canadian tax rate on all your income multiplied by the amount of the payment out of the IRA.