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david ingram replies:
The answer is yes. If you have a Roth IRA in the USA and return to Canada, the internal earnings are taxable on your Canadian tax return just as the internal earnings in an RRSP are taxable on your US tax return. However, unlike the exemptions provided by the US for the internal earnings of the RRSP, Canda does not seem to have done the same thing for a ROTH. Might be time to write our new Prime Minister when you see who made the following announcement. Please note that although the date on this notice is Dec 18, 1998, it was last updated on November 25, 2002.
Does anyone know a different answer?
Annual lists 2002 2001 2000 1999 1998 1997 1996 1995
a.. 2002.
b.. 2001.
c.. 2000.
d.. 1999.
e.. 1998.
f.. 1997.
g.. 1996.
h.. 1995.
Ottawa, December 18, 1998
1998-129
Qualified RRSP Investments and IRAs
Finance Minister Paul Martin today announced that he will propose changes to the Income Tax Act and the Income Tax Regulations to address two issues that have been recently raised with the Department of Finance, in the context of retirement savings decisions currently being made by individuals.
The first issue relates to foreign stock exchange index units. The Minister announced that he would propose changes to the Income Tax Regulations to ensure that these units are qualified investments for trusts governed by registered retirement savings plans, registered retirement income funds and deferred profit sharing plans. Qualifying units will include Standard & Poor 500 Depositary Receipts (SPDRs), units valued on the basis of the Dow Jones Industrial Average (known as DIAMONDs) and units for a particular country (known as WEBs) valued on the basis of the Morgan Stanley Capital Investment Index.
It is understood that industry practice for a number of years has been to treat these units as qualified investments. The proposed amendments would accommodate industry practice and recognize that index units can be part of a balanced portfolio of retirement assets for many individuals.
It is proposed that these amendments to the Regulations would apply to property acquired after 1993. This ensures that the regulatory framework conforms to the long-standing industry practice.
The second issue deals with individual retirement accounts (IRAs) established under the United States Internal Revenue Code. The Minister announced that he will propose an amendment to the Income Tax Act in response to recent changes to the Code relating to IRAs.
The changes to the Code have established a new type of IRA, known as a Roth IRA. Under the Code, contributions to a Roth IRA are not deductible, but investment income accrues tax-free and distributions are generally not taxable. Under certain circumstances, an individual may convert an ordinary IRA into a Roth IRA, but is required to include in computing income for the year of conversion the value of the ordinary IRA at the time of conversion. If the conversion is made in 1998, the income inclusion may be spread out over a four-year period.
The proposed amendment to the Act would affect Canadian residents who convert ordinary IRAs into Roth IRAs. It would require that the individual include in income for Canadian tax purposes any amount that must be included in income for U.S. tax purposes. This would ensure that the conversion amount is taxed in Canada, even where the IRA is converted simply by amending its terms. It would also ensure that the amount and timing of the inclusion in Canada matches the amount and timing in the U.S., thus allowing individuals to maximize the use of U.S. taxes paid on conversion as foreign tax credits in computing Canadian income tax payable.
Mr. Martin noted that the deferral opportunities in the U.S. for Roth IRAs are far more generous than the deferral opportunities in the U.S. for ordinary IRAs and the deferral opportunities in Canada for tax-assisted retirement savings. In particular, contributions can be made to a Roth IRA at any age, and there is no requirement for payments under a Roth IRA to begin by a certain age. Accordingly, there are no plans to provide tax assistance by way of an exemption from or deferral of taxation in Canada on earnings within a Roth IRA.
___________________
For further information:
Tax Legislation Division
(613) 992-1916 Jean-Michel Catta
Public Affairs and Operations Division
(613) 992-1574
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Last Updated: 2002-11-25
Important Notices
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