IRA deduction on 1040 (US) to used on Canadian return in 2009 - New protocols under Article 18(10) of US Canada Income Tax treat


Below is the result of your feedback form.  It was submitted by
XXX XXXXXXXXX on Saturday, December 5, 2009 at 12:36:39

My_question_is: Both

question: I deducted $5,000 on 1040 (US Tax Return)toward IRA.  

I claimed this deduction on T1 General (Canada Tax return).  

But Canada Rev Agency disallowed this deduction.  Is this correct?


david ingram replies:

First of all, if you have a Canadian non-deductible mortgage on your house, you are better off paying down the mortgage with after tax dollars then you are buying an IRA or an RRSP.

The CRA is correct for all US pension contributions up to and including 2008.  IRA and RRSP accounts will not be deductible in the future either unless part of an employer sponsored Group plan. :

Contributions to a US IRA are NOT deductible on a Canadian  return for 2009 either unless it is part of a Company sponsored Group employee plan. However a 401(K) or group plan will be dedcutible.  In reverse, A US citizen working in canada and living in the US will be able to deduct their Canadian Company pension or Group RRSP plan on their US return.

The following is a general shortened opinion, (not the actual protocol for which there is a link further down.)

Pension Provisions

The Protocol contains new rules regarding of contributions to “qualifying retirement plans” which are defined in Article 15(a, b, and c

These new rules apply to individuals residing in one country (the “residence country”) and working in the other and who contribute to a qualifying retirement plan in the country where they work.

Individuals who reside in one country  (Canada) and work in the other (USA) may deduct, for residence country tax purposes, the contributions they make to a qualifying retirement plan in the country where they work (up to the employee’s available RRSP deduction room in Canada).

There is also a provision for people transferred for 5 years or less to continue to contribute to their home country employer's

The tax relief afforded by the new rules only applies to the extent that contributions or benefits would qualify for tax relief in the country where the qualifying retirement plan is situated. For a citizen of the US, the US tax benefit may not exceed the amount that could be excluded from income for contributions and benefits under a corresponding plan established in, and recognized for tax purposes by, the US.

For purposes of Canadian taxation, the amount of the contributions otherwise allowed as a deduction to an individual for a taxation year shall not exceed the individual’s RRSP deduction limit (after taking into account contributions to RRSPs deducted by the individual for the year), and such deduction shall be taken into account in computing the individual’s RRSP deduction limit in Canada for subsequent taxation years.

The new rules are intended to facilitate movement of personnel between the two countries by removing a possible disincentive for cross-border workers and temporary work assignments.

The new rules apply for taxation years that begin after the calendar year in which the amendments come into force. However, if ratification is completed in 2007, the new rules apply for taxation years that begin in 2008 (i.e., the same calendar year that the amendments come into force). In this case, it was not ratified until 2008 and does not take effect until 2009.

These new rules were intended to facilitate movement of personnel between the two countries by removing disincentives for cross-border workers.

For Cross border transfers of less than 5 years the actual rules can be  found in Article 18(8) of the US / Canada Income Tax Treaty and for employees who are just making contributions and not transferred, the rules are in Article 18(10) and 18(11)

These protocols only went into force on Dec 15, 2008 as the following shows:  Phone Paul if you have any more questions (GRIN),

Tax Treaties

Related pages: Notices of Tax Treaty Developments - Status of Tax Treaties

Entry Into Force of the Protocol Amending the Tax Convention Between Canada and the United States

December 15, 2008

A Protocol amending the Convention between Canada and the United States with respect to taxes on income and on capital signed on September 26, 1980, as amended by the Protocols signed on June 14, 1983, March 28, 1984, March 17, 1995, and July 29, 1997, entered into force on December 15, 2008. The Protocol was signed on September 21, 2007. The Protocol will have effect as per the provisions contained in Article 27 of the Protocol.

For further information contact:

Paul Huynh
Tax Legislation Division
Phone: (613) 995-2980

Comments (2)

CEN-TA Cross Border Services - Tax, Visas, Immigration