I am planning on returning to Canada after 5 years in the US and plan to leave behind my IRA, rather than pay any early redemption penalties. I was considering using the option to convert my IRA to a Roth IRA. I see that the 2010 conversion allows you to claim the conversion income spread evenly over the 2011-2012 tax years to ease the immediate tax hit. i will be a canadian resident in 2011 and 2012, will this deferred conversion be considered a contribution to a Roth IRA while a Canadian resident (and thus not receive the tax-free distribution benefits of a Roth)? If so, i obviously will avoid this route!
Any help would be great, thanks.
2010 Roth IRA Conversion
Moderator: Mark T Serbinski CA CPA
No, the conversion takes place in 2010, and before you arrive in canada.
the spread of tax over the following years is a non-event in the eyes of CRA.
What you may have to consider however is what the taxrate of the conversion will be in 2011 and 2012, if you file as a US non-resident. It will likely be the treaty flat rate of 15% filed on a 1040NR. You would have to file a full-fledged 1040 to see if you could get lower than this.
the spread of tax over the following years is a non-event in the eyes of CRA.
What you may have to consider however is what the taxrate of the conversion will be in 2011 and 2012, if you file as a US non-resident. It will likely be the treaty flat rate of 15% filed on a 1040NR. You would have to file a full-fledged 1040 to see if you could get lower than this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks for the quick response.
One add-on:
Say i file a 1040NR in 2011 and 2012 and pay 15% US tax.
Now i also file my Canadian taxes as a resident and income earner in Canada.
Assuming i'm in the top bracket in Canada, do i have to then claim the Roth conversion income as world income on my Cdn return, getting credit for the 15% US tax paid mind you, and thus effectively end up paying the top Canadian marginal on the Roth conversion income?
One add-on:
Say i file a 1040NR in 2011 and 2012 and pay 15% US tax.
Now i also file my Canadian taxes as a resident and income earner in Canada.
Assuming i'm in the top bracket in Canada, do i have to then claim the Roth conversion income as world income on my Cdn return, getting credit for the 15% US tax paid mind you, and thus effectively end up paying the top Canadian marginal on the Roth conversion income?
Technically, Roth conversion *could* be reported as connected income (line 16) and taxed at progressive rates. As NECdn pointed out, this would likely be a lower tax than the 15% treaty rate.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Is this the same as non-resident alien?
An alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.
Who Must File
If you are any of the following, you must file a return:
* A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. You must file even if:
o Your income did not come from a trade or business conducted in the United States,
o You have no income from U.S. sources, or
o Your income is exempt from income tax.
However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501), you are not required to file.
* A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
I don't see the 15% flat tax rate anywhere either, it all depends on your annual income.
Also since you are leaving the United States, be sure to read this:
Before leaving the United States, all aliens (with certain exceptions) must obtain a certificate of compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You will receive a sailing or departure permit after filing a Form 1040-C (PDF) or Form 2063 (PDF).
Source: http://www.definerothira.com
Even if you have left the United States and filed a Form 1040-C, U.S. Departing Alien Income Tax Return (PDF), on departure, you still must file an annual U.S. income tax return. If you are married and both you and your spouse are required to file, you must each file a separate return, unless one of the spouses is a U.S. citizen or a resident alien, in which case the departing alien could file a joint return with his or her spouse (Refer to Nonresident Spouse Treated as a Resident).
An alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.
Who Must File
If you are any of the following, you must file a return:
* A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. You must file even if:
o Your income did not come from a trade or business conducted in the United States,
o You have no income from U.S. sources, or
o Your income is exempt from income tax.
However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501), you are not required to file.
* A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
I don't see the 15% flat tax rate anywhere either, it all depends on your annual income.
Also since you are leaving the United States, be sure to read this:
Before leaving the United States, all aliens (with certain exceptions) must obtain a certificate of compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You will receive a sailing or departure permit after filing a Form 1040-C (PDF) or Form 2063 (PDF).
Source: http://www.definerothira.com
Even if you have left the United States and filed a Form 1040-C, U.S. Departing Alien Income Tax Return (PDF), on departure, you still must file an annual U.S. income tax return. If you are married and both you and your spouse are required to file, you must each file a separate return, unless one of the spouses is a U.S. citizen or a resident alien, in which case the departing alien could file a joint return with his or her spouse (Refer to Nonresident Spouse Treated as a Resident).