Tax Court of Canada


Income Tax

Foreign income

U.S. IRA was taxable as “foreign retirement arrangement”

Taxpayer was Canadian resident who was dual citizen of Canada and United States (US). On death of taxpayer’s American mother, she received distribution of $21,740 from mother’s individual retirement account (US IRA) that named her as beneficiary. Distribution was taxed in United States. Taxpayer did not include amount of distribution in Canadian income tax return. Minister reassessed taxpayer under Income Tax Act, including amount in income and allowing foreign tax credit of $3,296.85 relating to U.S. income taxes paid. Taxpayer appealed. Appeal dismissed. Act set out specific scheme for taxation of amounts from arrangements such as US IRA, and taxpayer’s argument of alternate taxing mechanism was not persuasive. U.S. IRA was taxable under s. 56(1)(a)(i)(C.1) of Act as “foreign retirement arrangement” as it met specified conditions of US Internal Revenue Code of being custodial account held by approved person and constituted individual retirement account for exclusive benefit of individual or beneficiaries. Taxpayer’s suggestion of alternative methods of recording income, treating US IRA as investment portfolio for which capital gains would be included upon disposition of shares or finding that deemed disposition occurred upon her inheritance, were not persuasive. As s. 56(1)(a)(i)(C.1) of Act dealt specifically with situation at bar, amount received by taxpayer was taxable under that provision. Taxpayer’s argument that s. 248(28) of Act applied to bar double taxation was premised on view that s. 70(5) of Act also applied. As taxpayer’s mother was not resident of Canada, deemed disposition pursuant to s. 70(5) of Act did not apply and so there was no double taxation. Taxpayer was correctly assessed by Minister.

McKenzie v. R. (2017), 2017 CarswellNat 1311, 2017 TCC 56, Johanne D’Auray J. (T.C.C. [Informal Procedure]).


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