2014-0555271E5 Foreign Retirement Account - Isle of Man

Principal Issues: What are the tax consequences where a Canadian resident withdraws amounts from a retirement account in the Isle of Man? Can amounts in the retirement account be transferred to an RRSP?

Position: Canadian resident taxed on worldwide income. All amounts withdrawn from the retirement income must be included in the Canadian resident taxpayer's income in the year received. A transfer from the retirement account to an RRSP is not possible.

Reasons: Section 3. Paragraph 60(j).

Author: Allen, Gary
Section: 60(j), 248(1), 126(1)

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                                                                                                                                                               2014-055527
                                                                                                                                                               G. Allen

December 24, 2014

Dear XXXXXXXXXX:

Re:  Foreign Retirement Account
This is in reply to your email sent to us on November 11, 2014 concerning the taxation of a Canadian resident taxpayer’s savings in a retirement account in the Isle of Man.  Specifically, you enquire about the Canadian tax consequences where the taxpayer withdraws all amounts from the retirement account in one year, or over a period of fifteen years.  You also enquire whether it is possible to transfer an amount from the taxpayer’s retirement account to a registered retirement savings plan (RRSP).

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings.

A resident of Canada is taxable in Canada on the resident’s worldwide income.  Accordingly, any withdrawals from the taxpayer’s retirement account must be included in the taxpayer’s income in the year of receipt.  This applies whether all amounts are withdrawn from the retirement account in one year or over a period of fifteen years.  As Canada has no tax treaty with the Isle of Man, there are no limitations on Canada’s right to tax all amounts withdrawn from the retirement account in the year received by the taxpayer.   Further, depending on whether the retirement account is a trust, insurance contract or deposit, certain provisions of the Act may apply to tax any investment income earned in the account on an annual basis.     

If the taxpayer is subject to tax in the Isle of Man on amounts withdrawn from the retirement account, in general, a foreign tax credit may be available on the taxpayer's Canadian tax return in connection with any taxes paid to the government of the Isle of Man.  The foreign tax credit will reduce or eliminate the potential for double taxation of such income.  For more information on claiming a foreign tax credit, please refer to Income Tax Folio S5-F2-C1, Foreign Tax Credit at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s5/f2/s5-f2-c1-eng.html.

Subparagraph 60(j)(i) of the Act permits, where certain conditions are satisfied, a tax deferred transfer of a superannuation or pension benefit from a foreign pension plan to an RRSP.  The general position of the Canada Revenue Agency is that a plan will, in general, be considered to be a superannuation or pension plan where contributions have been made to the plan by or on behalf of an employer of an employee in consideration for services rendered by the employee and the contributions are used to provide the employee with an annuity or a pension on or after the employee's retirement.

In general, subparagraph 60(j)(ii) of the Act permits a tax deferred transfer of an amount from a foreign retirement arrangement to an RRSP.  A "foreign retirement arrangement" is defined in subsection 248(1) of the Act as a plan or arrangement prescribed by section 6803 of the Income Tax Regulations (the “Regulations”).  Currently, only Individual Retirement Accounts (IRAs) that are subject to subsections 408(a), (b) or (h) of the United States' Internal Revenue Code have been prescribed under section 6803 of the Regulations.

Accordingly, a tax deferred transfer to an RRSP would not be possible from the taxpayer’s retirement account in the Isle of Man.  However, it may be possible for the taxpayer to use the amounts withdrawn from the retirement account to make contributions to an RRSP, subject to the taxpayer’s available RRSP contribution limit.

We trust that our comments will be of assistance. 

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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