I am a dual citizen of the US and Canada currently living in Canada. I had a small insurance policy in Germany established decades ago and to which I did not make any contribution after leaving Germany. I did disclose this account/policy on my yearly FBAR form. Upon reaching retirement age I received a lump sum distribution in the current tax year. The payout was relatively small and the German Finanzamt did not withhold any taxes nor did they demand any taxes at this time.
I am wondering whether this payout is a capital gain or ordinary income? Which country has first dips on the taxes, Canada or the US? Do I pay Canadian taxes first and then take a foreign tax credit on my US taxes?
This is a bigger headache than its worth.
Thank you for your help.
German Insurance Payout
Moderator: Mark T Serbinski CA CPA