declaring deferred income

lanman2000 · Post by **lanman2000** » Mon Feb 08, 2010 12:11 pm

Hi there,

I have a bit of a strange situation and I'm wondering exactly how to handle it.

I am a dual US/Canadian citizen and lived in the US for the past 10 years. I recently moved back to Canada this past summer of 2009.

I used to work for a company in the US and was on a deferred compensation plan (a non-qualified plan, ie. not a 401(k)). I deferred a percentage of my income for several years into the plan. The company went bankrupt in 2007 and all of that money was frozen. Finally at the end 2009, I received a bankruptcy settlement for a small percentage of that money that was deferred compensation. Since that money was "earned" prior to me moving back to Canada but paid out to me by the bankruptcy court after I moved to Canada do I have to declare it on my Canadian 2009 return?

The more general question is does "worldwide income" from a CRA point of view mean only that income earned from wherever while resident in Canada or could it be earned prior to becoming a resident in Canada and paid out during Canadian residence and still be subject to taxation?

nelsona · Post by **nelsona** » Mon Feb 08, 2010 12:16 pm

Money received while resident of canada is considered reportable in canada.

This money would be considered as earned when you received it, in my opinion.

lanman2000 · Post by **lanman2000** » Tue Feb 09, 2010 1:18 pm

That was my gut feel too but I found several things online that clearly state that accounting for income for the CRA is to be done using the accrual method rather than the cash method. That says to me that since I accrued the income prior to moving to Canada they have no claim to stake on it...

nelsona · Post by **nelsona** » Tue Feb 09, 2010 2:45 pm

This has not been the practice when arriving in Canada. Also, when back-wages are awarded by a court, they are taxable in the year recived, unless CRA gives permission otherwise (as in the civil service sex discrimination case).

lanman2000 · Post by **lanman2000** » Wed Feb 24, 2010 4:11 pm

I did a lot more reading on this and I think I don't have to declare this as income in Canada. Yes I finally received pennies on the dollar of what I put into it after I moved to Canada through the bankruptcy court BUT it was earned years ago in the US and there is what I believe relevant guidance from CRA on salary deferral arrangements here:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/ ... l-eng.html

Which says:

"If the arrangement is not a prescribed plan, treat the deferred salary and wages as employment income in the year in which the employee earns the amount."

Emphasis on "earns". So since I didnt "earn" it in 2009 then its not taxable in 2009 in CRA's eyes.

I'm pretty sure my US 457 plan was NOT a prescribed plan after looking at the definition of "prescribed plan" and it was most surely a salary deferral arrangement.

What do you think? Am I making sense? Or is my application of "Salary deferral arrangement rules" from the CRA not applicable to my US 457 deferred comp plan?

nelsona · Post by **nelsona** » Wed Feb 24, 2010 5:46 pm

A 457 plan is considered a pension by treaty definition

Pension income is taxable in canada to the extent that it is in US.

In my opinion, your backpayment is surely taxable in US, so it is taxable in canada since it was received after you arrived.

Just as if a pension owed to you had been withheld for many years and then paid out.

The reference you gave applies to Cdn payors. The treaty mekes the plan a pension.

lanman2000 · Post by **lanman2000** » Wed Feb 24, 2010 7:44 pm

ok thanks. After I posted I thought the same thing ... it was never taxable in the US until the payout happened so it was for sure a taxable event while i was on cdn soil.

I was just grasping for anything that could justify me not declaring the income on my cdn return... no such luck....

thanks again for your help!