US citizen/CAN resident early IRA withdrawal

steadgarwin · Post by **steadgarwin** » Mon Feb 20, 2017 3:28 pm

Can a US citizen claim as a Canadian FTC the 10% early IRA withdrawal penalty based on ruling 2011-0398741I7? What is the mechanism -- would it involve resourcing of pension income? (since effective US tax including the penalty would typically be above 15%)

nelsona · Post by **nelsona** » Mon Feb 20, 2017 10:23 pm

The tax on us pensions is not subject to the 15% limit, which really only applies to investment income. The same would be if this was wages.

steadgarwin · Post by **steadgarwin** » Tue Feb 21, 2017 9:24 am

Right, tax rates for Canadian resident US citizens with IRAs is same as US residents. But -- how does the 10% early withdrawal penalty fit into FTC?

There was a 2011 ruling about early IRA withdrawal which was related to a case brought by a Canadian citizen. Does this ruling + verbage of US Canada tax treaty mean that Canadian resident US citizens can also apply the 10% early withdrawal penalty as a FTC for the CRA?

nelsona · Post by **nelsona** » Tue Feb 21, 2017 4:33 pm

As you suggest, CRA changed their position on this and have accepted the penalty as a creditable tax.

nelsona · Post by **nelsona** » Tue Feb 21, 2017 4:37 pm

Why would you think your situation wouldn't apply? The penalty applies equally regardless of citizenship or residence.
You will likely, inder new guidelines to prove both the witholding and the penalty.