# Bifurcation of Roth IRA Post-Canadian Contribution



## rothcra (Apr 10, 2021)

Hi all, 

Has anyone here ever brought a Roth IRA up to Canada and made a contribution down the line? How does one report this bifurcated account on their T1135 and T1 as parts of it are treated differently? The CRA's competent authority said that (assuming a valid election) upon contribution the percentage of the contribution vs the existing amount would determine the taxable amount going forward so that each year a portion of the gains/income would be taxable, but that it was also possible to designate the contribution in certain assets/holdings as well although that would be more difficult to keep track of.

If anyone has any experience with the above and how to do the math it would really be helpful. Or a professional they can recommend who would definitely understand how to handle this, thanks!


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## NickZ (Jun 26, 2009)

If that's what they told you exactly. I assume you have it in writing.

It's fairly clear.

Imagine you're starting it 90K and adding 10K. A total of 100K. Going forward assuming no more contributions you're tracking 10% paying on that percentage.

The other option would be to put the 10K into something specific. Then you'd just track that investment.

The part that would worry me is "valid contribution". 

You're looking for a CA dealing with tax.


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## rothcra (Apr 10, 2021)

thanks a lot for your reply, NickZ. it was a conversation over the phone with a contact within the department. Do you think I need to get it in writing or an audio recording or something? My interpretation was much more harsh in terms of how it should be treated, so I was relieved to hear how they process it.

I was concerned about how it would affect adjusted cost basis and keeping track of separate portions, but I think I agree with your assessment in that all the ACB calculations and tracking would remain the same and then a portion (in your example 10%) of those gains/losses and income would be reported/claimed on the return. Tracking a specific investment seems straightforward unless it is sold piecemeal and then it seems as if it would get a bit complicated to keep track of. As well as if it is a holding that is shared across different accounts which would require a shared ACB.

What do you think happens if there are additional contributions? Would it increase the percentage based on the amount prior to the first contribution or prior to the second contribution?



NickZ said:


> The part that would worry me is "valid contribution".


I'm assuming above was reference to "valid election" ? I meant valid election in terms of an election to defer taxation, which would be subsequently revoked after the first contribution.

I have had conversations with several cross border CPAs, some CA designated, but none seem to fully understand the ins and outs of the Roth IRA after a contribution happens. Speaking with the competent authority for an hour was really very helpful to help understand some of the nuances.


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## NickZ (Jun 26, 2009)

Always get everything you can in writing from CRA. If later they change their minds you have a good faith defense and in the worst case you'll be paying the difference not a fine plus interest. You don't want to be in a situation of saying he said this. You want something in writing to show why you did what you did.

Tracking isn't really hard. If you buy five hundred shares of something. Then each year sell one hundred shares your cost per share stays the same. The gain/loss is calculate per lot of shares.

I'd expect further contributions to be based on the current market value of the total. But it seems that only matters if you're commingling . If you're tracking the investments on their own then it seems from your conversation it isn't an issue. 

Do they still sell Quicken in Canada? That made tracking investments (purchase,sales,dividends etc fairly easy) But unless you're doing rapid fire trading you likely don't even need that.


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## rothcra (Apr 10, 2021)

NickZ said:


> Always get everything you can in writing from CRA. If later they change their minds you have a good faith defense and in the worst case you'll be paying the difference not a fine plus interest. You don't want to be in a situation of saying he said this. You want something in writing to show why you did what you did.


Solid advice, I wonder if a voice recording would be accepted, but I think written response is definitely the best way, I'll see if I can send a follow up email.



NickZ said:


> Tracking isn't really hard. If you buy five hundred shares of something. Then each year sell one hundred shares your cost per share stays the same. The gain/loss is calculate per lot of shares.


It can be quite a bit more complicated since the Roth IRA holds US based assets so forex has to be accounted for when reporting to the CRA. there are some services like adjustedcostbase.ca that can help, but it is still complex especially when you factor in things like recurrent DRIPs. Once part of the holding is sold most brokerage firms sweep the proceeds into a pooled money market account and forex needs to be accounted for again. If the money market experiences a gain or income then that bifurcation will need to be applied to that holding as well and forex accounted for. Not saying it's impossible by any means, but it is already difficult to track ACB in foreign held accounts with foreign held assets and this just adds another layer of complexity to it. adjustedcostbase.ca maintains a blog and you can see from the number of comments on posts how quickly things can become confusing.



NickZ said:


> I'd expect further contributions to be based on the current market value of the total. But it seems that only matters if you're commingling . If you're tracking the investments on their own then it seems from your conversation it isn't an issue.
> 
> Do they still sell Quicken in Canada? That made tracking investments (purchase,sales,dividends etc fairly easy) But unless you're doing rapid fire trading you likely don't even need that.


thanks a lot for your insight, I do agree that any further contributions should be based on the FMV at the time of each contribution. I'm going to try to include that question in my followup contact with the CRA's competent authority. It would definitely simplify things if one could hold the contributions in a separate pool of assets and not have to think about it.

I believe quicken is available in Canada and it sounds like it might be able to be configured to handle a situation like this even if it isn't automatically implemented to handle the specific circumstances, I'll look into it, thanks. I am definitely not doing rapid fire trading and I've written my own scripts to calculate things, but it's more the specific policies surrounding the calculations of these accounts that needs to be determined. Once the rules are laid out the implementation should be trivial. It would be great if the CRA provided more guidance and examples for this, but I think a followup query with them is definitely in order to iron out the specifics.


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## NickZ (Jun 26, 2009)

rothcra said:


> It can be quite a bit more complicated since the Roth IRA holds US based assets so forex has to be accounted for when reporting to the CRA.


Bank of Canada puts out average annual exchange rates. You can use those for filing. Unless this has changed. 









Annual Exchange Rates


View the annual average exchange rates. Published on the last business day of the year by 12:30 ET.




www.bankofcanada.ca





Don't overthink this. Virtually every Canadian with a brokerage account has at least US investments. 

I admit I was taught to do all this using a paper worksheet but it's not hard for a limited number of transactions.


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## rothcra (Apr 10, 2021)

For the non-Roth IRA accounts it is straightforward since the rules are well documented. I've written my own scripts to generate the T1135s and report correct numbers for the gains/loss and income given the data, but I can't implement a gray area for the Roth IRA since the rules are not clear. My query was strictly related to the treatment of a Roth IRA after a Canadian contribution and if anyone had experience with managing and reporting an account in that state.


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