SECTION 1. PURPOSE

This revenue procedure provides guidance for applying Article XVIII(7) of the United States-Canada Income Tax Convention, signed on September 26, 1980, as amended by Protocols signed on June 14, 1983, March 28, 1984, March 17, 1995, and July 29, 1997 (the “Convention”). It supersedes Revenue Procedure 89–45 (1989–2 C.B. 596), which provided guidance for applying former Article XXIX(5) of the Convention. Article XVIII(7), which was added to the Convention by the Protocol that was signed on March 17, 1995, expanded and replaced Article XXIX(5).

.01 Domestic Rules . Under the domestic law of the United States, an individual who is a citizen or resident of the United States and a beneficiary of a Canadian retirement plan will be subject to current United States income taxation on income accrued in the plan even though the income is not currently distributed to the beneficiary, unless the plan is an employees’ trust within the meaning of section 402(b) of the Internal Revenue Code and the individual is not a highly compensated employee subject to the rule of section 402(b)(4)(A). However, if the plan satisfies certain requirements under the domestic law of Canada, the income accrued in the plan will not be subject to Canadian income taxation until it is actually distributed from the plan (or from another plan to which it is transferred in a tax-free rollover). Thus, there may be a mismatch between the timing of the United States tax and the Canadian tax, with the result that the individual may be subject to double taxation for which no relief is available under Article XXIV of the Convention.

.02 Former Article XXIX(5) . Former Article XXIX(5) of the Convention addressed the timing mismatch in respect of a U.S. citizen who was a resident of Canada and a beneficiary of a Canadian registered retirement savings plan (“RRSP”) by providing that such a U.S. citizen could elect, under rules established by the competent authority of the United States, to defer United States taxa

.07 Prospective Change of Election . An election once made cannot be revoked except with the consent of the Commissioner.