Overview
These CRA interpretations address how Inherited U.S. Individual Retirement Accounts (IRAs) are taxed when the beneficiary is a Canadian resident. Issues covered across the rulings include:
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Whether inherited IRA withdrawals are taxable in Canada
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Whether they qualify as pension income under Canadian law
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Whether amounts can be rolled over or transferred to an RRSP
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Application of Article XVIII of the Canada–U.S. Tax Treaty
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How lump-sum amounts are treated
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Whether IRA income is eligible for the pension credit
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CRA’s administrative positions in beneficiary scenarios
1. IRA Withdrawals Are Taxable in Canada as Pension Income
(Based on 2002-0154285 & 2002-0155705)
CRA confirms that:
An inherited IRA is treated as a pension for Canadian tax purposes.
Withdrawals received by a Canadian resident beneficiary must be included in income under:
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ITA 56(1)(a)(i) — pension benefits
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ITA 60(g) — applicable deduction provisions (if any)
Source of the amount does NOT change the tax treatment
Whether the IRA was originally funded by the deceased’s contributions or employer contributions does not alter the outcome.
U.S. tax withheld on IRA distributions
may be creditable in Canada as a Foreign Tax Credit if conditions under s.126(1) are satisfied.
2. Inherited IRA Is Not Eligible for RRSP Rollover
(Based on 2006-0186661M4)
CRA was asked whether:
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An inherited IRA qualifies as “pension income”
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Whether it is eligible for:
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the pension income tax credit, or
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a transfer to an RRSP under 60(i) or 60(j)
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CRA Conclusions:
No rollover permitted
Inherited IRA amounts cannot be transferred to an RRSP or RRIF under any rollover provision of section 60.
May not qualify for the pension credit
CRA states that inherited IRA payments do not meet the definition of “qualified pension income” for the purposes of the pension credit.
Still treated as taxable pension income
Even though it does not qualify for favourable treatment, it remains fully taxable in Canada.
3. Treaty Application — Article XVIII (Pensions)
(Based on 2015-0576551E5)
CRA confirms that the correct Treaty article governing IRA payments to Canadian residents is:
Article XVIII(1) — Pensions
Key points:
✔ IRA distributions—including lump sums—are considered “pensions”
and therefore taxable only in the country of residence (Canada),
unless paragraph 2(b) applies for periodic pension payments.
✔ Lump-sum payments are included in income under ITA 56(1)(a)(i)
even when arising from inherited accounts.
✔ Treaty does NOT recharacterize the amount
The IRA retains its pension character whether received by the original owner or the beneficiary.
4. CRA Confirmation Letter — Inherited IRA Treatment
(CRA Correspondence: Case DTS-20-013482)
This letter confirms CRA’s consistent longstanding position:
IRA payments to a Canadian beneficiary are taxable in Canada
Amounts are treated as pension income under 56(1)(a)(i)
No rollover to a Canadian registered plan is permitted
U.S. withholding tax, if imposed, may qualify for FTC
Canada does not recognize U.S. “stretch IRA” or special beneficiary rules for Canadian tax purposes
This ruling reinforces all earlier CRA positions.
5. Key Takeaways Across All Rulings
- Inherited IRA withdrawals are fully taxable in Canada as pension income under 56(1)(a)(i).
- Inherited IRAs cannot be transferred to: RRSP, RRIF, PRPP, Locked-in plans
- IRA distributions do NOT qualify for the pension tax credit
- U.S. withholding tax may be eligible for FTC but limited to Canadian tax payable on that same income.
- Lump-sum IRA withdrawals are taxable in Canada (but not eligible for special treatment or deferral)
- Treaty Article XVIII governs IRA payments and confirms pension characterization.
Disclaimer
This page summarizes CRA technical interpretations 2002-0154285, 2002-0155705, 2006-0186661M4, 2015-0576551E5, and CRA’s correspondence DTS-20-013482. These interpretations may not represent current CRA policy. This information is for general education only and is not tax, legal, or financial advice.
Redaction Notice
All names, phone numbers, office locations, signatures, and confidential identifiers from the original CRA documents have been removed to protect privacy and comply with publishing guidelines.
