401K contributions not deductible in Caanda in past - maybe yes in 2008
Sir, I am a Canadian citizen employed by a US company. I have been contributing along with my employer to the company 401K plan for a number of years now (19). For those years Canada has been taxing my part of the total contribution as taxable earned income and adding these to the amount shown under "Wages, tips, other compensation" on my US W2 Wage & Tax Statement. There has been no US tax paid on these contributions. My question is: Will Canada tax this money again under the terms of the US/Canada tax treaty when I retire and commence withdrawing amounts from the 401K plan. I understand that the US will apply a withholding tax as per their own tax rules, however I do not know if Canada can double dip under the rules of the treaty. Thank you in anticipation of a reply. --------------------------------------------------------
david ingram replies:
You will be paying 15% tax to the US on the amounts coming out of your US 401(K).
This 15% is then deductible as a foreign tax credit on your Canadian tax return.
The part that you are being returned where you did not get a deduction has to be isolated out of the blended payments and can be claimed tax free in Canada but you will not get credit for the 15% tax paid to the US so it 'is' Double Taxation.
I think but am not yet sure that an amendment to the Tax Treaty on Sept 21 will allow you to deduct the US 401 K on your Canadian return but until the CRA releases its Technical notes on the new amendments to the treat, I will not be sure.
Anyone else with an opinion?
david ingram replies:
You will be paying 15% tax to the US on the amounts coming out of your US 401(K).
This 15% is then deductible as a foreign tax credit on your Canadian tax return.
The part that you are being returned where you did not get a deduction has to be isolated out of the blended payments and can be claimed tax free in Canada but you will not get credit for the 15% tax paid to the US so it 'is' Double Taxation.
I think but am not yet sure that an amendment to the Tax Treaty on Sept 21 will allow you to deduct the US 401 K on your Canadian return but until the CRA releases its Technical notes on the new amendments to the treat, I will not be sure.
Anyone else with an opinion?
What's Related