Canadian Taxation of US IRA Assets - Art XVIII US Caanda Tax Treaty


I have invested funds from my US self directed IRA retirement account to purchase stock in a private company in Canada. The Canadian private company is going to be taken out by another company. I realize I will have to pay capital gains tax in Canada on the stock gain, however since it's my IRA retirement account funds in the US, is there any way to recover these taxes that I pay to Canada?
david ingram replies:

If the funds are within an American IRA, they do NOT form part of your Canadian tax return although the reverse is not true with American holders of Canadian RRSP accounts being required to report the internal earnings on their US 1040. Thankfully, all these internal earnings can be exempted from current tax by filing IRS form 8891.

You have no current tax liability to Canada on the Capital Gain.

When you cash in the IRA or take it out as a pension, you will be taxable on 100 percent of the gain in both countries as you withdraw the money. However, Canada will then give you a tax credit for the tax paid to the US. If you are living in Canda at the time of withdrawal as a pension, the maximum tax the US can take is 15% under Article XVIII of the US Canada Tax Treaty.

If you are living in the US at the time, Canada will not have any right to tax the IRA.