IRA taxation in Canada
QUESTION:
I am a retired airline pilot of U.S. Air. As an American/Canadian resident of Canada, but employed in the U.S. I contributed to a company 401K (now converted to an IRA). As a U.S. citizen, I realize any withdrawals from my U.S. IRA will be taxed as ordinary income by the United States. However, as a Canadian resident, Canada always insisted on taxing me on my U.S. gross income and not on the net less the 401K contributions. This is as allowed in the U.S. Does Canada, who have already taxed me on money going into my 401K plan, have the right to tax me on the withdrawals as well? I have heard they do, but that being the case this sounds like very punitive double taxation to me.
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david ingram replies:
It is double taxation and it is a total miscarriage of justice in my opinion. Everyone should write their Member of Parliament and tell them to change the law.
It is why I tell everyone in your position to opt out of the voluntary payment into your 401(K). We have also been successful in getting the US employers to allow their employees to show the same amount contributed to an RRSP (and deductible in Canada) to satisfy their contribution requirements.
I am a retired airline pilot of U.S. Air. As an American/Canadian resident of Canada, but employed in the U.S. I contributed to a company 401K (now converted to an IRA). As a U.S. citizen, I realize any withdrawals from my U.S. IRA will be taxed as ordinary income by the United States. However, as a Canadian resident, Canada always insisted on taxing me on my U.S. gross income and not on the net less the 401K contributions. This is as allowed in the U.S. Does Canada, who have already taxed me on money going into my 401K plan, have the right to tax me on the withdrawals as well? I have heard they do, but that being the case this sounds like very punitive double taxation to me.
_________________________________________________________________
david ingram replies:
It is double taxation and it is a total miscarriage of justice in my opinion. Everyone should write their Member of Parliament and tell them to change the law.
It is why I tell everyone in your position to opt out of the voluntary payment into your 401(K). We have also been successful in getting the US employers to allow their employees to show the same amount contributed to an RRSP (and deductible in Canada) to satisfy their contribution requirements.
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