ROTH IRAs for TN moving back to Canada = Gary Gauvin reply - international non-resident cross border income tax help estate fami

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Gary Gauvin was one of two partners in my Ottawa office from about 1984 to 1994.  He now practices in Texas.
david ingram
Subject: Roth IRAs

I was referred to you by David Ingram. I am a Canadian citizen, working in Texas for 10 years on a TN visa. We have 2 US born children and have been contributing to Roth IRA’s for years now. We plan on eventually retiring back to Canada. As I understand it, Canada Revenue does not acknowledge the Roths as a retirement vehicle and I will be taxed on the total amount of the IRA when I pull it out at retirement (both initial investments plus any added value). I have been maxing out my contributions each year and have already paid the IRS taxes on those initial contributions- when I pull them out later it seems to me that Canada Revenue will get to tax me again, essentially I will be double taxed on the initial contributions. What is my best plan to avoid this? I was thinking either sell all of the initial contribution amount before I go back to Canada that the IRS will allow without penalty, or keep it in the US mutual fund account and eventually my children will get the direct inheritance and will not be liable for taxes to the IRS or Canada Revenue on ALL of the Roth amount when they cash it in. Does this sound about right or am I missing something. Its too bad Revenue Canada does not acknowledge them cause they seem to be the best retirement option out there, especially if you have it invested in high dividend mutual funds like REITs. Thanks for the help, eh.    


From: Gary Gauvin [mailto:[email protected]]
Sent: Thursday, January 25, 2007 1:46 PM
To: xxxxxxxx
Cc: [email protected]
Subject: RE: Roth IRAs
Importance: High

Article XVIII(1) of the Canada US Tax Treaty states that [reworded for clarity]:
"Pensions" arising in the US and paid to a resident of Canada shall have a non-taxable portion computed just as it would be for a US resident receiving the amount. Thus the taxable amount determined for US purposes is all that Canada can tax.
Article XVIII(3) was amended by the third protocol to specifically clarify it includes IRAs, RRSPs and the like under the definition of "pensions"
On its own the treaty clearly exempts from Canadian taxation both the principal and income elements of distributions that would be non-taxable for US purposes. Whether The Income Tax Act allows for this treatment is irrelevant if it is overridden by the tax treaty.
In my humble opinion, none of the distribution is taxable in Canada if it would not be taxable in the US. Canada Revenue on its own may not agree but I believe the US or Canadian competent authority would agree, as would the courts.
In another example of this treaty provision, Canadian resident recipients of United Nation's pensions (even who have never worked or spent a day in the US) are taxable in Canada using the rules in Internal Revenue Code §72 because of the treaty provision. Just because the pension is administered from NYC. The regular Canadian rules are again not relevant. Details of this are in a paper at which I was called upon to review for United Nations pension retirees.
A Roth IRA is NOT a Canadian "Foreign Retirement Arrangement" defined at ITA §248 which specifically includes only Regular IRAs IRC§ 408(a) and IRA Annuities IRC§ 408(b). Note that Roth IRAs are IRC§ 408A(b). This does not mean Roth IRAs are not a "retirement vehicle" as you describe, merely that they are not a specific type defined in the Income Tax Act.
As with everything I am always open for debate.
Hope this helps.
Gary P Gauvin LLC
Income Tax Services

2500 Rochelle Rd

Rockwall TX 75032

Phone (469) 273-3399

Fax (972) 772-4184

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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 If you forward this message, this disclaimer must be included."
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