Canadian taxation of IRA at death

[vancarver]

Hi. Thanks for a very helpful site. I couldn't find info on this. I am a Canadian citizen (renounced American citizenship) whose only asset in the US is an IRA of roughly 150K. If I leave it there and slowly draw down, I know upon my death my (non-spousal) beneficiary will have to deal with US taxes. But will Canada tax that full amount as well? If so, seems like double taxation, with no recourse for foreign tax credit. Many thanks.

[nelsona]

There will be tax in both countries, so they will match, just like they will before you die.

The transfer to your spouse will not incur tax in either country, and your widow will simply continue to pay yearly tax like you currently are when you draw down.

But if she decides at your death to collapse the account, there will be tax in both countries,, which will match up, so I don't understand your concern about foreign tax credit.

[vancarver]

Thank you for your reply. I'm not married, so the beneficiary is non-spousal, if that makes a difference. Could you possibly explain what you mean by "matching?" While I am alive Vanguard withholds 15% income tax from withdrawals, and I pay Canadian income tax on the same, but claim the foreign tax credit. But at my death my American niece and nephew will inherit the IRA and pay US tax, presumably on a stretched-out basis. I'm just not certain how Canada Revenue treats this. From what you said, I assume the full amount is taxable in the year of my death, but can my executor claim a foreign tax credit based on what my niece and nephew have to pay? Sorry if I'm missing something, and thanks again.

[nelsona]

Sorry, did not notice non-spousal. and the fact that they are in US also changes things, since they will pay tax in US and YOU/estate will pay tax in canada.

It would be best, at death, for the estate to receive the IRA, and the relatives recieve the proceeds, not the IRA.

[vancarver]

Thank you very much.