Roth IRA in Canada: Does It Stay Tax-Free?

A Roth IRA usually stays tax-free in Canada, but only if two things hold. You file a one-time election under Article XVIII(7) of the Canada-US treaty, which stops Canada taxing the growth inside the account each year. And nothing new goes into the Roth while you’re a Canadian resident. Do both and the CRA says that “in most cases” no part of the Roth is taxed here. It’s one of the accounts covered in cross-border retirement planning.

Does Canada tax my Roth IRA if I do nothing?

Yes, every year, on the income building up inside the account. Canada doesn’t give a Roth the deferral it gives an RRSP or a traditional IRA, so without the treaty election the CRA’s position is that the income accrued in a Roth is generally taxable in Canada on a current, annual basis. How that income gets counted depends on what the account legally is, which the CRA calls fact specific.

“A Roth IRA does not enjoy the income tax deferral benefits afforded under the Act to Canadian registered plans and traditional IRAs. As a result, the income accrued in a Roth IRA is generally taxable in Canada on a current, annual basis.” (CRA folio S5-F3-C1, ¶1.3)

The folio sorts Roth IRAs into three legal forms, each taxed differently:

• A custodial account, which the CRA treats as the typical case. You look through to the assets and include the interest, dividends and gains they produce under the ordinary rules (¶1.5).
• A trust. The CRA generally expects a Roth trust to be an exempt foreign trust, so the non-resident trust rules don’t apply, and a sole beneficiary instead includes the trust’s foreign accrual property income (¶1.6).
• An annuity or endowment contract, where the answer depends on the contract’s own terms (¶1.7).

If you’re reading older advice, check its date. The folio was first published October 9, 2020, when it replaced and cancelled Income Tax Technical News No. 43, and the current version is effective February 3, 2022.

Does the treaty election make my Roth tax-free?

It makes the growth tax-deferred. Article XVIII(7) lets a Canadian resident elect to defer Canadian tax on income accrued in the plan but not distributed, and that’s all it does. The tax-free part comes from Article XVIII(1), which exempts a distribution in Canada to the extent the US would leave it out of income if you lived there. Put the two together and a qualifying withdrawal is never taxed in Canada.

“A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust, company, organization or other arrangement that is a resident of the other Contracting State, generally exempt from income taxation in that other State and operated exclusively to provide pension or employee benefits may elect to defer taxation in the first-mentioned State, subject to rules established by the competent authority of that State, with respect to any income accrued in the plan but not distributed by the plan, until such time as and to the extent that a distribution is made from the plan or any plan substituted therefor.” (Canada-US treaty, Article XVIII(7), consolidated text published by Finance Canada)

A Roth counts as a “pension” for this article because Article XVIII(3)(b) names it expressly. The CRA turns XVIII(1) into a two-part test in folio ¶1.11: the payment wouldn’t be taxable in the US if you were resident there, and the Roth still qualifies as a pension. Neither part mentions the election, so the deferral and the exemption are tracked separately.

The US leg is usually the qualified-distribution rule. IRS Publication 590-B requires the 5-year period plus one of age 59½, disability, death, or a first-home distribution up to a $10,000 lifetime limit, and the IRS says “qualified distributions are tax-free” (IRS, Roth IRAs). A withdrawal that’s only a return of your regular contributions is also left out of US gross income under the same publication, and its ordering rules take regular contributions out first. So that withdrawal clears XVIII(1) too, even if it isn’t qualified.

IRS Publication 597 states the same rule from the US side: a Roth distribution is exempt from Canadian tax to the extent it would be exempt from US tax if paid to a US resident. A traditional IRA or 401(k) in Canadian hands runs on different rules, covered in the 15% treaty rate on IRA and 401(k) withdrawals.

How do I file the Roth IRA election with the CRA?

By letter. There’s no CRA form. The folio says to file a one-time, irrevocable election for each Roth IRA you own, on or before your filing-due date for the tax year you became a Canadian resident, and mail it to the Competent Authority Services Division in Ottawa. Where no Canadian tax is owing on a Roth yet, the CRA may accept a protective election. Once it’s filed, you don’t make it again in later years.

What the letter has to contain (folio ¶1.17)	Where you get it
Your name, address, SIN and SSN	Your own records
Name and address of the Roth trustee or administrator	Account statement
The Roth account number	Account statement
The date the Roth was established	The custodian, if your records don’t go back that far
The date you became resident in Canada	Your residency determination
The balance on December 31, 2008 or the date you became resident, whichever is later	Historical statement for that date
The amount and date of the first Canadian Contribution, if any	Contribution history
A signed statement electing under paragraph 7 of Article XVIII for all tax years	You write it

Own more than one Roth? One letter can cover them, but it needs every item for each account. Mail it to the address in ¶1.18: Competent Authority Services Division, Canada Revenue Agency, 18th Floor, Canada Building, 344 Slater Street, Ottawa, ON K1A 0L5.

For most people the filing-due date is April 30, but the CRA’s filing dates page gives June 15 to people who carried on a business that year (other than mainly a tax shelter). Keep a copy of the election, the US tax forms, and the Roth’s records of contributions, conversions, rollovers, income and withdrawals, because the CRA may ask for them (¶1.20).

Missed the deadline? The folio doesn’t close the door. It tells anyone who didn’t file in time to contact the Competent Authority Services Division (¶1.16), and treats procedure questions as theirs to answer (¶1.21). It doesn’t say whether a late election will be accepted. Meanwhile the yearly tax on the account’s income has been running since you became resident, so count those years before you write.

What breaks a Roth IRA’s protection in Canada?

A Canadian Contribution: money put into the Roth by you, or for you, while you’re resident in Canada. From that date the account splits. The balance just before the contribution stays a treaty pension, and withdrawals out of it stay exempt. Everything the account earns after that date, across the whole account, becomes taxable in Canada each year. A conversion from a traditional IRA counts as a contribution. A Roth-to-Roth rollover doesn’t.

What goes into the Roth while you’re a Canadian resident	Canadian Contribution? (folio ¶1.14)
A rollover from another Roth IRA	No
A rollover from a Roth 401(k)	No
A contribution made before 2009	No
New money contributed	Yes
A conversion or rollover from a traditional IRA	Yes
A rollover from a traditional 401(k) or profit sharing plan	Yes

The treaty text is the source of the split. Article XVIII(3)(b) says that once contributions are made for a resident of the other country, the Roth stops being a pension “to the extent of accretions from such time”. The folio spells out the result in ¶1.13: the part before the contribution “continues to be considered a pension and remains exempt from taxation in Canada (if an Election had been filed)”, and the rest “ceases to be considered a pension and becomes subject to Canadian taxation.”

That’s also why converting while you live in Canada is usually the wrong order. If a conversion is on the table, it generally belongs before the move, which is the whole question in doing a Roth conversion before moving to Canada. Contributing at all from Canada needs US taxable compensation under the IRS contribution rules, and IRA and Roth IRA contributions while living in Canada covers that side.

Do I report a Roth IRA on Form T1135 in Canada?

Not if you’ve filed the election and made no Canadian Contribution. In that case the CRA says it doesn’t require Roth information on Form T1135, T1141, T1142 or T1134. Miss either condition and the Roth goes on those forms as applicable. The T1135 itself applies when you hold specified foreign property costing more than $100,000 at any time in the year, and it’s due with your return.

“If an Election has been filed and no Canadian Contribution has been made to a Roth IRA, the CRA does not require information relating to the Roth IRA to be reported in the following forms: Form T1135, Foreign Income Verification Statement; Form T1141 …; Form T1142 …; Form T1134 …” (folio ¶1.22)

Folio ¶1.23 adds that the forms’ references to a US IRA mean traditional IRAs only, not Roth IRAs. The $100,000 trigger comes from the CRA’s T1135 page. The relief is an administrative position in the folio, so file on the basis of the two conditions and not on a general claim that “IRAs are exempt”. The T1135 guide covers the form itself.

Is there a Roth IRA equivalent in Canada?

The TFSA is the closest match: after-tax money in, tax-free growth, tax-free withdrawals. The match breaks once you cross the border. Canada respects a Roth only through the treaty steps above, and the US gives a TFSA no matching treaty treatment, which is why a TFSA in a US person’s hands raises the foreign trust question. TFSA vs Roth IRA, side by side runs the full comparison.

Which of four situations are you in?

Two facts set most people’s answer: whether the election was filed, and whether a Canadian Contribution was ever made. Together they decide how Canada treats the growth, the withdrawals and the foreign reporting forms. Find the row that matches your facts.

Your state	Canadian tax on growth inside the Roth	Canadian tax on withdrawals	T1135 and the other forms
A. Election filed, no Canadian Contribution	Deferred (¶1.9)	Exempt to the extent the US wouldn’t tax it (¶1.11)	Not required (¶1.22)
B. Election missed, no Canadian Contribution	Taxed every year as it accrues (¶1.3 to 1.7)	Same ¶1.11 test, which doesn’t mention the election	Report as applicable (¶1.23)
C. Election filed, then a Canadian Contribution	Deferred before the contribution, taxed every year after it (¶1.12)	Exempt up to the balance just before the first Canadian Contribution (¶1.12)	Report as applicable (¶1.23)
D. Election missed, and a Canadian Contribution	Taxed every year as it accrues	Exempt at most up to the balance just before the first Canadian Contribution	Report as applicable (¶1.23)

The cell people get backwards is state B’s withdrawal column. Skipping the election costs you the deferral. It doesn’t by itself decide how a withdrawal is taxed, because folio ¶1.11 states that test without reference to the election.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.