Receipt of Canadian pension by a California US

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Date:           Friday December 05, 2003
Time:           04:09 PM -0800
QUESTION:
I was born in the US of Canadian parents, returned to Canada as a
naturalized Canadian citizen at the age of 2, married a Canadian citizen and
emigrated back to the US in 1989 at the age of 38.  At that time I declared
myself an American citizen while my wife became a green-carded resident
alien.  We have permanently resided in California ever since.  My wife was a
teacher in Canada for 18 years and under the terms of her pension fund must
begin to receive payments at age 55, March of 2005.
What are the tax implications of her receipt of this pension income?  Can
she direct deposit the payments into an investment vehicle in Canada and
defer the tax to her final retirement date?  Would it be better to pay the
Canadian withholding tax of 15% and accept receipt of the payments?
Thanks for your time and trouble
BXXXXXXXXXXX
=================================================
david ingram replies:
She should receive the pension as a non-resident of Canada and the payer should withhold 15% non-resident withholding tax under Article XVII of the US / CANADA Income Tax Treaty.  The payer will then issue a T4A NR4 or equicvalent slip and that is the end of your Canadian Tax filing requirements "UNLESS" the CCRA requests or demands a tax return from you or your wife.
She will then report the income on her US 1040 and California 540  =  At this point, you can try and calculate the portion of the pension that was contributed by your wife and count it as a tax free portion of the income.  Usually, about three years of pension can be considered refund of the premiums made by your wife. After that, she would be taxable at your regular rates in California and you would claim credit for the tax paid to Canada on form 1116.
The money is taxable in the USA no matter what you do with it.  Because you do not seem to need it, you could use the equivalent to buy your self or your wife (if qualified) a 401(K) or a SEP or even a conventional IRA each for $2,000.  This wold not be a direct rollover, but the availablity of the money wqould leave funds for you to make a deductible contirbution you might not have made otherwise because of lack of funds..
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
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North Vancouver,  BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
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David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
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