Canadian resident 401(k) issues

[mikedebo]

I've tried to infer the answer to my question by spleunking through the CCRA website and reading threads here, but I'm not 100% certain on the answer. My apologies in advance, because I feel like this is a question that is answered frequently.

I am a Canadian citizen living in Canada. In 2006 I worked in California for 8 months on a J1 visa, at which time I contributed money to a Vanguard 401(k) plan because of generous employer matching. I then returned to Canada and have lived here ever since.

Just a couple of weeks ago, I received a notice that I was being taxed on the entire balance of the 401(k) as if it was regular income. I've talked to a few accountants who seem very unsure as to whether this should be the case or not.

My question is: Am I actually required to pay this tax? For the sake of my sanity, could someone possibly point out to me the exact documentation in whatever document/treaty that states this clearly?

Thanks so much!

[nelsona]

I assume you collapsed the 401(k)? If you did, then the withdrawal is entirely taxable in US.

For canada:

During the time you were in US, did you maintain Cdn tax residency, and did you report both your wages and your 401(K) contributions as income? If you did, then only the portion in excess of your contributions would be taxable in Canada.
If not, then the entire amount is taxable in canada.


If you have not collapsed the 401(k), then what CRA is probably asking you is to include the 401(k) contributions you made as income (you will note that your W-2 'wage box' excludes this amount). This is clearly indicated in all CRA tax return guides.