Under provisions of the Fifth Protocol to the Convention, a Roth IRA is considered a “pension” for the purposes of Article XVIII(3)(b) as long as no contributions are made to the plan while a resident of Canada after December 31, 2008. Rollover contributions made while a resident of Canada are not included in “Canadian Contributions”.
To ensure that income earned within a Roth IRA is deferred and considered a “pension” under Article XVIII of the Convention, an election must be made by April 30 after the year a person becomes or is considered a resident of Canada. Income earned after the date of a “Canadian Contribution”, based on the contributions made while a resident of Canada will be considered taxable in Canada in the year earned.
Conclusion: All persons who moved to Canada during a year must file an election by April 30 of the following year (due date of return) to ensure that income earned within the Roth IRA from contributions made while a nonresident of Canada will be deferred, and considered "pension income" under the Treaty. There is no provision for a late filed election, so if an election is not filed on a timely basis, all income within the Roth IRA could be considered taxable for Canadian tax purposes.
The election must include the following information:
- Name and address;
- Social insurance number and social security number;
- Name and address of Roth IRA trustee or custodian;
- Roth IRA account number;
- Date plan was established;
- Date you became a resident of Canada;
- Balance of the Roth IRA as of the later of December 31, 2008 or the date you became a resident of Canada;
- Amount and date of the first "Canadian Contribution" - Contributions made while a resident of Canada; and
- A signed statement indicating your intention to defer Canadian taxation under Article XVIII(7) of the Canada U.S. Income Tax Convention with respect to any income accrued to the Roth IRA for all taxation years until such time as a Canadian Contribution is made.
Filing the Election:
The election must be separately filed prior to the due date at:
Competent Authority Services Division,
International and Large Business Directorate,
5th Floor, Canada Building,
344 Slater Avenue,
Ottawa, Ontario K1A 0L5
Please advise us immediately if you have become a Canadian resident and if you have a Roth IRA account.