FTC calculation when 60j transfer from IRA to RRSP

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
mackayr
Posts: 74
Joined: Wed Apr 14, 2010 9:37 pm

FTC calculation when 60j transfer from IRA to RRSP

Post by mackayr »

Is the FTC prorated when there's a large 60j transfer to RRSP? Here's the scenario:
(All figures are in CDN for convenience)

Social Security income = 8.9k
Lump sum withdrawal from IRA = 126.1k
Transfer to RRSP (qualifying for 60j) = 60k
US tax = 18.8k
Canadian federal and provincial tax = 18.2k

Taxpayer is a resident alien (Green card)
Canadian resident so only the lump sum IRA withdrawal is taxable in US.

Intuitively, it would seem that because there's a direct correlation between the 60k, there should be some reduction in the FTC available. In this instance, following the instructions for the T2209, the net income (ie. 73.7k) as both the numerator and denominator, and the full 18.8k is the tax paid to a foreign country. As a result, this results in Nil tax owing.

I'm using software, but I've reviewed the calculations on T2209 and T2036 and they seem correct.

Am I missing something? Should the US tax be prorated perhaps to remove the portion that relates to the amount that was transferred to the RRSP under 60j?
mackayr
Posts: 74
Joined: Wed Apr 14, 2010 9:37 pm

Re: FTC calculation when 60j transfer from IRA to RRSP

Post by mackayr »

Update: I found a reference in the ruling that indicates that the net foreign non-business income doesn't have to be reduced by the amount transferred to the RRSP, so that only leaves the question of the foreign tax paid. Should the foreign tax paid be prorated to remove the portion that relates to amount transferred to the RRSP?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: FTC calculation when 60j transfer from IRA to RRSP

Post by nelsona »

No it does not, That is the only way such a transfer makes sense.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Post Reply