Monthly IRA Payments

AHTrenc · Post by **AHTrenc** » Wed May 01, 2013 4:02 pm

I've been looking around the posts and other sites to find out whether or not monthly IRA payments are considered pension or annuity distributions under the US / Canada tax treaty ( subject to 15 % witholding after filing a w8ben).

nelsona · Post by **nelsona** » Wed May 01, 2013 5:03 pm

They are pensions. Periodic pensions. The taxable portion (usually al of it) is flat 15% tax by treaty -- assuming you are over 59.5.

Then the income is included on your CDn return, with the 15% tax avaialable as a foreign tax credit.

nelsona · Post by **nelsona** » Wed May 01, 2013 5:05 pm

Of course, if you converted to an annuity...

The taxable portion (usually all of it) is flat 15% tax by treaty -- assuming you are over 59.5.

Then the income is included on your CDn return, with the 15% tax avaialable as a foreign tax credit.

so... no difference in how you are taxed in either country.

joe_canuck100 · Post by **joe_canuck100** » Wed May 01, 2013 5:46 pm

I haven't had to worry about foreign tax credits yet so just wondering.

In this scenario, does it means that the US has withheld 15% of the money pulled out of the IRA (ie: already remitted the tax) and therefore, if Canada taxes the amount pulled out at a higher % rate, then you pay the difference to Canada at tax time? Likewise, if the amount taken by the US is less than you need to remit on your Canadian taxes, you would ask for the excess back from the Canadian gov't at tax time?

nelsona · Post by **nelsona** » Wed May 01, 2013 11:01 pm

No. You pay 15% up front to US and that is all for US.

For Canada, you inclde all the income, and you can use the 15% towards the Cdn tax on that income. If you owe more, you owe more. If you don't use all the Us tax, it is lost. US doesn't have to refuns any taxes on its own income.

joe_canuck100 · Post by **joe_canuck100** » Thu May 02, 2013 12:36 pm

Thanks again Nelson.

rlb · Post by **rlb** » Fri May 03, 2013 5:07 pm

Does the 15% flat tax apply regardless of whether the IRA is taken as periodic payments, or as a lump sum (after age 59.5)?

nelsona · Post by **nelsona** » Fri May 03, 2013 5:41 pm

This is a little murky. Basically, the treaty is silent on non-periodic pensions. Technically it should be 30%, since the trwaty is silent on thsi. However the withholding guidelines from the IRS simply say 15%.

That said, if one were withheld 30%, I would then file 1a 1040NR to try to recoup the 15% and see what happens.