401K contributions taxable in 2007 not in 2008 - david ingram expert US CANADA cross border non-resident income tax help and pre

XXX XX wrote:
Hi there,

I worked in USA in 2007 and recently I got a letter from our great
CCRA saying that I need to pay tax on my 401K, which apparently is a
double tax,
and the rule of Canada do NOT say that it is taxable or not, as far as
I understand. Do you know what I should do now? I could hire you if
you have a proved solution.

By the way it seems that your web questionnaire does not work?

Thanks.

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david ingram replies:

Up until 2007, the CRA did not recognize your payment to a 401K as a tax deduction on a Canadian return.  In effect, it was of no use to you on a Canadian Return.

Thankfully this was addressed in a change to the treaty in Sept 2007 and for the 2008 tax return if it was deductible on your US return, it will be deductible on a Canadian return if it is any sort of registered retirement arrangement in the USA. 
.
I am assuming that you were commuting or only there temporarily.  If you had moved to the US, the US money would not have been taxable in Canada and this would not have been a problem.

This older answer will help you


Hi David,

I saw a thread on the web regarding your advice on the treatment of 401k deferrals by the Canadian government.  Anyhow, I'm a returning Canadian to Vancouver from living in the US for over 10 years.  I am transitioning with my US company still and am now working remotely for them  since I returned in July.  Anyhow, I'm just trying to get a handle on the US/Canadian Treaty to determine what I might owe to the Canadian government this year.  The part that is confusing is with the 401k bit and if I need to include is as income for Canadian tax purposes (looks like from the thread the rule is yes, but the practice is possibly no?). 

Was wondering if you are still providing tax advice as this website thread was dated 2003?  If so, what is your rate?  My questions are relatively simple, but I guess that's what everyone tells you. 

-----------------------------------------

david ingram replies:

Very occasionally someone admits that they have already tried a dozen people but usually you are correct.  They say it is a simple question.  Your question is the first one I have answered for sure in this manner because we have been waiting for the Technical amendments to the new treaty which was signed on Sept 21, 2007.  Amendments came out from  the senate foreign relation committee hearing on July 10th.  If you or anyone else wants a copy of the whole thing, send me a separate email to taxman@centa.com and put TECHNICAL AMENDMENTS REQUEST (nothing else, not a please or anything else or it will be spammed out) in the SUBJECT LINE.
My prices can be found at the end of this

Up to Dec 31, 2007, that  2003 thread was correct.  If you made $100,000 in the US and paid $5,000 into your 401(K), the USA would only tax you on the $95,000 while Canada would tax you on the whole $100,000.  Of course,m this only applied to Canadians who were still taxable in Canada while working for US employers.

Unfortunately, there are / were thousands in this position.  An amazing number of Canadians commute on a daily or weekly basis to jobs in the US while continuing to live in Canada.

Under amendments made to the treaty back on Sept 21, 2008 to take affect on Jan 1, 2008, Paragraphs 9 to 17 o Article XVIII of the US Canada Income Tax Convention can now deduct the payments to the 401(K) plan when filing their Canadian Tax return.

There is a 60 out 0f 120 month  limit in some cases of temporary work assignments for inter company transfers dealt with by paragraphs 8 and 9 of the new version. this seems to tie in with the five year exemption for payment of FICA or CPP for those who are transferred and this seems to apply to those individuals who are working under inter company transfers in the other country. It is meant to allow a temporary transfer to continue to pay into  the home country's Social Security plan and home company's pension plan so that on retirement, they only have one to deal with. 

Commuters are dealt with in paragraph 10.

Roth IRS's are also dealt with.  I am including some pages of the technical amendments to the New Treaty and you can read them for yourself.
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Article 13
Article 13 of the Protocol replaces paragraphs 3, 4, and 7 and adds paragraphs 8 through 17 to Article XVIII (Pensions and Annuities) of the Convention.
Paragraph 1
Roth IRAs
Paragraph 1 of Article 13 of the Protocol separates the provisions of paragraph 3 of Article XVIII into two subparagraphs. Subparagraph 3(a) contains the existing definition of the term “pensions,” while subparagraph 3(b) adds a new rule to address the treatment of Roth IRAs or similar plan (as described below).
Subparagraph 3(a) of Article XVIII provides that the term "pensions" for purposes of the Convention includes any payment under a superannuation, pension, or other retirement arrangement, Armed-Forces retirement pay, war veterans pensions and allowances, and amounts paid under a sickness, accident, or disability plan, but does not include payments under an income-averaging annuity contract (which are subject to Article XXII (Other Income)) or social security benefits, including social security benefits in respect of government services (which are subject to paragraph 5 of Article XVIII). Thus, the term “pensions” includes pensions paid by private employers (including pre-tax and Roth 401(k) arrangements) as well as any pension paid in respect
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of government services. Further, the definition of “pensions” includes, for example, payments from individual retirement accounts (IRAs) in the United States and from registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada.
Subparagraph 3(b) of Article XVIII provides that the term “pensions” generally includes a Roth IRA, within the meaning of Code section 408A (or a similar plan described below). Consequently, under paragraph 1 of Article XVIII, distributions from a Roth IRA to a resident of Canada generally continue to be exempt from Canadian tax to the extent they would have been exempt from U.S. tax if paid to a resident of the United States. In addition, residents of Canada generally may make an election under paragraph 7 of Article XVIII to defer any taxation in Canada with respect to income accrued in a Roth IRA but not distributed by the Roth IRA, until such time as and to the extent that a distribution is made from the Roth IRA or any plan substituted therefore. Because distributions will be exempt from Canadian tax to the extent they would have been exempt from U.S. tax if paid to a resident of the United States, the effect of these rules is that, in most cases, no portion of the Roth IRA will be subject to taxation in Canada.
However, subparagraph 3(b) also provides that if an individual who is a resident of Canada makes contributions to his or her Roth IRA while a resident of Canada, other than rollover contributions from another Roth IRA (or a similar plan described below), the Roth IRA will cease to be considered a pension at that time with respect to contributions and accretions from such time and accretions from such time will be subject to tax in Canada in the year of accrual. Thus, the Roth IRA will in effect be bifurcated into a “frozen” pension that continues to be subject to the rules of Article XVIII and a savings account that is not subject to the rules of Article XVIII. It is understood by the Contracting States that, following a rollover contribution from a Roth 401(k) arrangement to a Roth IRA, the Roth IRA will continue to be treated as a pension subject to the rules of Article XVIII.
Assume, for example, that Mr. X moves to Canada on July 1, 2008. Mr. X has a Roth IRA with a balance of 1,100 on July 1, 2008. Mr. X elects under paragraph 7 of article XVIII to defer any taxation in Canada with respect to income accrued in his Roth IRA while he is a resident of Canada. Mr. X makes no additional contributions to his Roth IRA until July 1, 2010, when he makes an after-tax contribution of 100. There are accretions of 20 during the period July 1, 2008 through June 30, 2010, which are not taxed in Canada by reason of the election under paragraph 7 of Article XVIII. There are additional accretions of 50 during the period July 1, 2010 through June 30, 2015, which are subject to tax in Canada in the year of accrual. On July 1, 2015, while Mr. X is still a resident of Canada, Mr. X receives a lump-sum distribution of 1,270 from his Roth IRA. The 1,120 that was in the Roth IRA on June 30, 2010 is treated as a distribution from a pension plan that, pursuant to paragraph 1 of Article XVIII, is exempt from tax in Canada provided it would be exempt from tax in the United States under the Internal Revenue Code if paid to a resident of the United States. The remaining 150 comprises the after tax
contribution of 100 in 2010 and accretions of 50 that were subject to Canadian tax in the year of accrual.
The rules of new subparagraph 3(b) of Article XVIII also will apply to any plan or arrangement created pursuant to legislation enacted by either Contracting State after September 21, 2007 (the date of signature of the Protocol) that the competent authorities agree is similar to a Roth IRA.
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Source of payments under life insurance and annuity contracts
Paragraph 1 of Article 13 also replaces paragraph 4 of Article XVIII. Subparagraph 4(a) contains the existing definition of annuity, while subparagraph 4(b) adds a source rule to address the treatment of certain payments by branches of insurance companies.
Subparagraph 4(a) provides that, for purposes of the Convention, the term"annuity" means a stated sum paid periodically at stated times during life or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration other than services rendered. The term does not include a payment that is not periodic or any annuity the cost of which was deductible for tax purposes in the Contracting State where the annuity was acquired. Items excluded from the definition of "annuity" and not dealt with under another Article of the Convention are subject to the rules of Article XXII (Other Income).
Under the existing Convention, payments under life insurance and annuity contracts to a resident of Canada by a Canadian branch of a U.S. insurance company are subject to either a 15-percent withholding tax under subparagraph 2(b) of Article XVIII or, unless dealt with under another Article of the Convention, an unreduced 30-percent withholding tax under paragraph 1 of Article XXII, depending on whether the payments constitute annuities within the meaning of paragraph 4 of Article XVIII.
On July 12, 2004, the Internal Revenue Service issued Revenue Ruling 2004-75,2004-2 C.B. 109, which provides in relevant part that annuity payments under, and withdrawals of cash value from, life insurance or annuity contracts issued by a foreign branch of a U.S. life insurance company are U.S.-source income that, when paid to a nonresident alien individual, is generally subject to a 30-percent withholding tax under Code sections 871(a) and 1441. Revenue Ruling 2004-97, 2004-2 C.B. 516, provided that Revenue Ruling 2004-75 would not be applied to payments that were made before January 1, 2005, provided that such payments were made pursuant to binding life insurance or annuity contracts issued on or before July 12, 2004.
Under new subparagraph 4(b) of Article XVIII, an annuity or other amount paid in respect of a life insurance or annuity contract (including a withdrawal in respect of the cash value thereof), will generally be deemed to arise in the Contracting State where the person paying the annuity or other amount (the “payer”) is resident. However, if the payer, whether a resident of a Contracting State or not, has a permanent establishment in a Contracting State other than a Contracting State in which the payer is a resident, the payment will be deemed to arise in the Contracting State in which the permanent establishment is situated if both of the following requirements are satisfied: (i) the obligation giving rise to the annuity or other amount must have been incurred in connection with the permanent establishment, and (ii) the annuity or other amount must be borne by the permanent establishment. When these requirements are satisfied, payments by a Canadian branch of a U.S. insurance company will be deemed to arise in Canada.
Paragraph 2
Paragraph 2 of Article 13 of the Protocol replaces paragraph 7 of Article XVIII of the existing Convention. Paragraph 7 continues to provide a rule with respect to the taxation of a natural person on income accrued in a pension or employee benefit plan in the other Contracting State. Thus, paragraph 7 applies where an individual is a citizen or resident of a Contracting State and is a beneficiary of a trust, company, organization, or
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company, organization, or other arrangement is generally exempt from income taxation in that other State, and is operated exclusively to provide pension, or employee benefits. In such cases, the beneficiary may elect to defer taxation in his State of residence on income accrued in the plan until it is distributed from the plan (or from another plan in that other Contracting State to which the income is transferred pursuant to the domestic law of that other Contracting State).
Paragraph 2 of Article 13 of the Protocol makes two changes to paragraph 7 of Article XVIII of the existing Convention. The first change is that the phrase “pension,retirement or employee benefits” is changed to “pension or employee benefits” solely to reflect the fact that in certain cases, discussed above, Roth IRAs will not be treated as pensions for purposes of Article XVIII. The second change is that “under” is changed to “subject to” to make it clear that an election to defer taxation with respect to undistributed income accrued in a plan may be made whether or not the competent authority of the first-mentioned State has prescribed rules for making an election. For the
U.S. rules, see Revenue Procedure 2002-23, 2002-1 C.B. 744. As of the date the Protocol was signed, the competent authority of Canada had not prescribed rules.
Paragraph 3
Paragraph 3 of Article 13 of the Protocol adds paragraphs 8 through 17 to Article XVIII to deal with cross-border pension contributions. These paragraphs are intended to remove barriers to the flow of personal services between the Contracting States that could otherwise result from discontinuities in the laws of the Contracting States regarding the deductibility of pension contributions. Such discontinuities may arise where a country allows deductions or exclusions to its residents for contributions, made by them or on their behalf, to resident pension plans, but does not allow deductions or exclusions for payments made to plans resident in another country, even if the structure and legal requirements of such plans in the two countries are similar.
There is no comparable set of rules in the OECD Model, although the issue is discussed in detail in the Commentary to Article 18 (Pensions). The 2006 U.S. Model deals with this issue in paragraphs 2 through 4 of Article 18 (Pension Funds).
Workers on short-term assignments in the other Contracting State
Paragraphs 8 and 9 of Article XVIII address the case of a short-term assignment where an individual who is participating in a “qualifying retirement plan” (as defined in paragraph 15 of Article XVIII) in one Contracting State (the “home State”) performs services as an employee for a limited period of time in the other Contracting State (the “host State”). If certain requirements are satisfied, contributions made to, or benefits accrued under, the plan by or on behalf of the individual will be deductible or excludable in computing the individual’s income in the host State. In addition, contributions made to the plan by the individual’s employer will be allowed as a deduction in computing the employer’s profits in the host State.
In order for paragraph 8 to apply, the remuneration that the individual receives with respect to the services performed in the host State must be taxable in the host State. This means, for example, that where the United States is the host State, paragraph 8 would not apply if the remuneration that the individual receives with respect to the services performed in the United States is exempt from taxation in the United States under Code section 893.
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The individual also must have been participating in the plan, or in another similar plan for which the plan was substituted, immediately before he began performing services in the host State. The rule regarding a successor plan would apply if, for example, the employer has been acquired by another corporation that replaces the existing plan with its own plan, transferring membership in the old plan over into the new plan.
In addition, the individual must not have been a resident (as determined under Article IV (Residence)) of the host State immediately before he began performing services in the host State. It is irrelevant for purposes of paragraph 8 whether the individual becomes a resident of the host State while he performs services there. A citizen of the United States who has been a resident of Canada may be entitled to benefits under paragraph 8 if (a) he performs services in the United States for a limited period of time and (b) he was a resident of Canada immediately before he began performing such services.
Benefits are available under paragraph 8 only for so long as the individual has not performed services in the host State for the same employer (or a related employer) for more than 60 of the 120 months preceding the individual’s current taxable year. The purpose of this rule is to limit the period of time for which the host State will be required to provide benefits for contributions to a plan from which it is unlikely to be able to tax the distributions. If the individual continues to perform services in the host State beyond this time limit, he is expected to become a participant in a plan in the host State. Canada’s domestic law provides preferential tax treatment for employer contributions to foreign pension plans in respect of services rendered in Canada by short-term residents, but such treatment ceases once the individual has been resident in Canada for at least 60 of the preceding 72 months.
The contributions and benefits must be attributable to services performed by the individual in the host State, and must be made or accrued during the period in which the individual performs those services. This rule prevents individuals who render services in the host State for a very short period of time from making disproportionately large contributions to home State plans in order to offset the tax liability associated with the income earned in the host State. In the case where the United States is the host State, contributions will be deemed to have been made on the last day of the preceding taxable year if the payment is on account of such taxable year and is treated under U.S. law as a contribution made on the last day of the preceding taxable year.
If an individual receives benefits in the host State with respect to contributions to a plan in the home State, the services to which the contributions relate may not be taken into account for purposes of determining the individual’s entitlement to benefits under any trust, company, organization, or other arrangement that is a resident of the host State, generally exempt from income taxation in that State and operated to provide pension or retirement benefits. The purpose of this rule is to prevent double benefits for contributions to both a home State plan and a host State plan with respect to the same services. Thus, for example, an individual who is working temporarily in the United States and making contributions to a qualifying retirement plan in Canada with respect to services performed in the United States may not make contributions to an individual retirement account (within the meaning of Code section 408(a)) in the United States with respect to the same services.
Paragraph 8 states that it applies only to the extent that the contributions or benefits would qualify for tax relief in the home State if the individual were a resident of and performed services in that State. Thus, benefits would be limited in the same fashion
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provides that if the host State is the United States and the individual is a citizen of the United States, the benefits granted to the individual under paragraph 8 may not exceed the benefits that would be allowed by the United States to its residents for contributions to, or benefits otherwise accrued under, a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States. Thus, the lower of the two limits applies. This rule ensures that U.S. citizens working temporarily in the United States and participating in a Canadian plan will not get more favorable U.S. tax treatment than U.S. citizens participating in a U.S. plan.
Where the United States is the home State, the amount of contributions that may be excluded from the employee’s income under paragraph 8 for Canadian purposes is limited to the U.S. dollar amount specified in Code section 415 or the U.S. dollar amount specified in Code section 402(g)(1) to the extent contributions are made from the employee’s compensation. For this purpose, the dollar limit specified in Code section 402(g)(1) means the amount applicable under Code section 402(g)(1) (including the age 50 catch-up amount in Code section 402(g)(1)(C)) or, if applicable, the parallel dollar limit applicable under Code section 457(e)(15) plus the age 50 catch-up amount under Code section 414(v)(2)(B)(i) for a Code section 457(g) trust.
Where Canada is the home State, the amount of contributions that may be excluded from the employee’s income under paragraph 8 for U.S. purposes is subject to the limitations specified in subsections 146(5), 147(8), 147.1(8) and (9) and 147.2(1) and (4) of the Income Tax Act and paragraph 8503(4)(a) of the Income Tax Regulations, as applicable. If the employee is a citizen of the United States, then the amount of contributions that may be excluded is the lesser of the amounts determined under the limitations specified in the previous sentence and the amounts specified in the previous paragraph.
The provisions described above provide benefits to employees. Paragraph 8 also provides that contributions made to the home State plan by an individual’s employer will be allowed as a deduction in computing the employer’s profits in the host State, even though such a deduction might not be allowable under the domestic law of the host State. This rule applies whether the employer is a resident of the host State or a permanent establishment that the employer has in the host State. The rule also applies to contributions by a person related to the individual’s employer, such as contributions by a parent corporation for its subsidiary, that are treated under the law of the host State as contributions by the individual’s employer. For example, if an individual who is participating in a qualifying retirement plan in Canada performs services for a limited period of time in the United States for a U.S. subsidiary of a Canadian company, a contribution to the Canadian plan by the parent company in Canada that is treated under
U.S. law as a contribution by the U.S. subsidiary would be covered by the rule.
The amount of the allowable deduction is to be determined under the laws of the home State. Thus, where the United States is the home State, the amount of the deduction that is allowable in Canada will be subject to the limitations of Code section 404 (including the Code section 401(a)(17) and 415 limitations). Where Canada is the home State, the amount of the deduction that is allowable in the United States is subject to the limitations specified in subsections 147(8), 147.1(8) and (9) and 147.2(1) of the Income Tax Act, as applicable.
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Cross-border commuters
Paragraphs 10, 11, and 12 of Article XVIII address the case of a commuter who is a resident of one Contracting State (the “residence State”) and performs services as an employee in the other Contracting State (the “services State”) and is a member of a “qualifying retirement plan” (as defined in paragraph 15 of Article XVIII) in the services State. If certain requirements are satisfied, contributions made to, or benefits accrued under, the qualifying retirement plan by or on behalf of the individual will be deductible or excludible in computing the individual’s income in the residence State.
In order for paragraph 10 to apply, the individual must perform services as an employee in the services State the remuneration from which is taxable in the services state and is borne by either an employer who is a resident of the services State or by a permanent establishment that the employer has in the services State. The contributions and benefits must be attributable to those services and must be made or accrued during the period in which the individual performs those services. In the case where the United States is the residence State, contributions will be deemed to have been made on the last day of the preceding taxable year if the payment is on account of such taxable year and is treated under U.S. law as a contribution made on the last day of the preceding taxable year.
Paragraph 10 states that it applies only to the extent that the contributions or benefits qualify for tax relief in the services State. Thus, the benefits granted in the residence State are available only to the extent that the contributions or benefits accrued qualify for relief in the services State. Where the United States is the services State, the amount of contributions that may be excluded under paragraph 10 is the U.S. dollar amount specified in Code section 415 or the U.S. dollar amount specified in Code section 402(g)(1) (as defined above) to the extent contributions are made from the employee’s compensation. Where Canada is the services State, the amount of contributions that may be excluded from the employee’s income under paragraph 10 is subject to the limitations specified in subsections 146(5), 147(8), 147.1(8) and (9) and 147.2(1) and (4) of the Income Tax Act and paragraph 8503(4)(a) of the Income Tax Regulations, as applicable.
However, paragraphs 11 and 12 further provide that the benefits granted under paragraph 10 by the residence State may not exceed certain benefits that would be allowable under the domestic law of the residence State.
Paragraph 11 provides that where Canada is the residence State, the amount of contributions otherwise allowable as a deduction under paragraph 10 may not exceed the individual’s deduction limit for contributions to registered retirement savings plans (RRSPs) remaining after taking into account the amount of contributions to RRSPs deducted by the individual under the law of Canada for the year. The amount deducted by the individual under paragraph 10 will be taken into account in computing the individual’s deduction limit for subsequent taxation years for contributions to RRSPs. This rule prevents double benefits for contributions to both an RRSP and a qualifying retirement plan in the United States with respect to the same services.
Paragraph 12 provides that if the United States is the residence State, the benefits granted to an individual under paragraph 10 may not exceed the benefits that would be allowed by the United States to its residents for contributions to, or benefits otherwise accrued under, a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States. For purposes of determining an individual’s eligibility to participate in and receive tax benefits with respect to a pension or retirement plan or other retirement arrangement in the United States, contributions
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made to, or benefits accrued under, a qualifying retirement plan in Canada by or on behalf of the individual are treated as contributions or benefits under a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States. Thus, for example, the qualifying retirement plan in Canada would be taken into account for purposes of determining whether the individual is an “active participant” within the meaning of Code section 219(g)(5), with the result that the individual’s ability to make deductible contributions to an individual retirement account in the United States would be limited.
Paragraph 10 does not address employer deductions because the employer is located in the services State and is already eligible for deductions under the domestic law of the services State.
U.S. citizens resident in Canada
Paragraphs 13 and 14 of Article XVIII address the special case of a U.S. citizen who is a resident of Canada (as determined under Article IV (Residence)) and who performs services as an employee in Canada and participates in a qualifying retirement plan (as defined in paragraph 15 of Article XVIII) in Canada. If certain requirements are satisfied, contributions made to, or benefits accrued under, a qualifying retirement plan in Canada by or on behalf of the U.S. citizen will be deductible or excludible in computing his or her taxable income in the United States. These provisions are generally consistent with paragraph 4 of Article 18 of the U.S. Model treaty.
In order for paragraph 13 to apply, the U.S. citizen must perform services as an employee in Canada the remuneration from which is taxable in Canada and is borne by an employer who is a resident of Canada or by a permanent establishment that the employer has in Canada. The contributions and benefits must be attributable to those services and must be made or accrued during the period in which the U.S. citizen performs those services. Contributions will be deemed to have been made on the last day of the preceding taxable year if the payment is on account of such taxable year and is treated under U.S. law as a contribution made on the last day of the preceding taxable year.
Paragraph 13 states that it applies only to the extent the contributions or benefits qualify for tax relief in Canada. However, paragraph 14 provides that the benefits granted under paragraph 13 may not exceed the benefits that would be allowed by the United States to its residents for contributions to, or benefits otherwise accrued under, a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States. Thus, the lower of the two limits applies. This rule ensures that a U.S. citizen living and working in Canada does not receive better U.S. treatment than a U.S. citizen living and working in the United States. The amount of contributions that may be excluded from the employee’s income under paragraph 13 is the U.S. dollar amount specified in Code section 415 or the U.S. dollar amount specified in Code section 402(g)(1) (as defined above) to the extent contributions are made from the employee’s compensation. In addition, pursuant to Code section 911(d)(6), an individual may not claim benefits under paragraph 13 with respect to services the remuneration for which is excluded from the individual’s gross income under Code section 911(a).
For purposes of determining the individual’s eligibility to participate in and receive tax benefits with respect to a pension or retirement plan or other retirement arrangement established in and recognized for tax purposes by the United States, contributions made to, or benefits accrued under, a qualifying retirement plan in Canada
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by or on behalf of the individual are treated as contributions or benefits under a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States. Thus, for example, the qualifying retirement plan in Canada would be taken into account for purposes of determining whether the individual is an “active participant” within the meaning of Code section 219(g)(5), with the result that the individual’s ability to make deductible contributions to an individual retirement account in the United States would be limited.
Paragraph 13 does not address employer deductions because the employer is located in Canada and is already eligible for deductions under the domestic law of Canada.
Definition of “qualifying retirement plan”
Paragraph 15 of Article XVIII provides that for purposes of paragraphs 8 through 14, a “qualifying retirement plan” in a Contracting State is a trust, company, organization, or other arrangement that (a) is a resident of that State, generally exempt from income taxation in that State and operated primarily to provide pension or retirement benefits; (b) is not an individual arrangement in respect of which the individual’s employer has no involvement; and (c) the competent authority of the other Contracting State agrees generally corresponds to a pension or retirement plan established in and recognized for tax purposes in that State. Thus, U.S. individual retirement accounts (IRAs) and Canadian registered retirement savings plans (RRSPs) are not treated as qualifying retirement plans unless addressed in paragraph 10 of the General Note (as discussed below). In addition, a Canadian retirement compensation arrangement (RCA) is not a qualifying retirement plan because it is not considered to be generally exempt from income taxation in Canada.

Paragraph 10 of the General Note provides that the types of Canadian plans that constitute qualifying retirement plans for purposes of paragraph 15 include the following and any identical or substantially similar plan that is established pursuant to legislation introduced after the date of signature of the Protocol (September 21, 2007): registered pension plans under section 147.1 of the Income Tax Act, registered retirement savings plans under section 146 that are part of a group arrangement described in subsection 204.2(1.32), deferred profit sharing plans under section 147, and any registered retirement savings plan under section 146, or registered retirement income fund under section 146.3, that is funded exclusively by rollover contributions from one or more of the preceding plans.

Paragraph 10 of the General Note also provides that the types of U.S. plans that constitute qualifying retirement plans for purposes of paragraph 15 include the following and any identical or substantially similar plan that is established pursuant to legislation introduced after the date of signature of the Protocol (September 21, 2007): qualified plans under Code section 401(a) (including Code section 401(k) arrangements), individual retirement plans that are part of a simplified employee pension plan that satisfies Code section 408(k), Code section 408(p) simple retirement accounts, Code section 403(a) qualified annuity plans, Code section 403(b) plans, Code section 457(g) trusts providing benefits under Code section 457(b) plans, the Thrift Savings Fund (Code section 7701(j)), and any individual retirement account under Code section 408(a) that is funded exclusively by rollover contributions from one or more of the preceding plans.
If a particular plan in one Contracting State is of a type specified in paragraph 10 of the General Note with respect to paragraph 15 of Article XVIII, it will not be necessary for taxpayers to obtain a determination from the competent authority of the
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other Contracting State that the plan generally corresponds to a pension or retirement plan established in and recognized for tax purposes in that State. A taxpayer who believes a particular plan in one Contracting State that is not described in paragraph 10 of the General Note nevertheless satisfies the requirements of paragraph 15 may request a determination from the competent authority of the other Contracting State that the plan generally corresponds to a pension or retirement plan established in and recognized for tax purposes in that State. In the case of the United States, such a determination must be requested under Revenue Procedure 2006-54, 2006-49 I.R.B. 655 (or any applicable analogous provision). In the case of Canada, the current version of Information Circular 71-17 provides guidance on obtaining assistance from the Canadian competent authority.
Source rule

Paragraph 16 of Article XVIII provides that a distribution from a pension or retirement plan that is reasonably attributable to a contribution or benefit for which a benefit was allowed pursuant to paragraph 8, 10, or 13 of Article XVIII will be deemed to arise in the Contracting State in which the plan is established. This ensures that the Contracting State in which the plan is established will have the right to tax the gross amount of the distribution under subparagraph 2(a) of Article XVIII, even if a portion of the services to which the distribution relates were not performed in such Contracting State.
Partnerships

Paragraph 17 of Article XVIII provides that paragraphs 8 through 16 of Article XVIII apply, with such modifications as the circumstances require, as though the relationship between a partnership that carries on a business, and an individual who is a member of the partnership, were that of employer and employee. This rule is needed because paragraphs 8, 10, and 13, by their terms, apply only with respect to contributions made to, or benefits accrued under, qualifying retirement plans by or on behalf of individuals who perform services as an employee. Thus, benefits are not available with respect to retirement plans for self-employed individuals, who may be deemed under U.S. law to be employees for certain pension purposes. Paragraph 17 ensures that partners participating in a plan established by their partnership may be eligible for the benefits provided by
paragraphs 8, 10, and 13.

Relationship to other Articles

Paragraphs 8, 10, and 13 of Article XVIII are not subject to the saving clause of paragraph 2 of Article XXIX (Miscellaneous Rules) by reason of the exception in subparagraph 3(a) of Article XXIX.

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pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

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IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com.  If you forward this message, this disclaimer must be included." -




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