Does My Roth IRA Stay Tax-Free in Canada?

In most cases nothing gets taxed here, and that outcome rests on three separate things rather than one. File the one-time Article XVIII(7) election and Canada defers the tax that would otherwise hit the account’s income every year. Contribute nothing to the Roth while you’re a Canadian resident and the whole account keeps its treaty pension status. Then take a distribution US rules treat as qualified, and Article XVIII(1) is what exempts it here. Each of the three does a different job, so missing one doesn’t automatically cost you the other two.

Does Canada tax my Roth IRA if I do nothing?

Yes, every year, and on the income accruing inside the account rather than on what you take out. A Roth gets none of the deferral Canada hands an RRSP or a traditional IRA, so the CRA’s position is that the income accrued in a Roth IRA is generally taxable in Canada on a current, annual basis, at your marginal rate. How much lands in your income depends on what the account legally is, which the CRA calls fact specific, so a custodial account, a trust and an annuity contract each run on different rules.

“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)

Three machines, depending on the form your Roth takes (folio 1.4):

• A custodial account, which the CRA treats as the typical case, gets looked through. You go to “the nature of the income and gains derived from the specific assets held in the account” (folio 1.5), so each type of income goes in under its own provision. The folio’s worked example is a Roth bank account paying monthly interest, included under paragraph 12(1)(c) of the Income Tax Act.
• A trust runs on different machinery. The CRA generally expects a Roth IRA trust for a Canadian resident to meet paragraph (h) of the exempt foreign trust definition in subsection 94(1), so section 94 doesn’t apply, and the individual instead includes the trust’s foreign accrual property income under sections 94.2 and 95 (folio 1.6).
• An annuity or endowment contract has no general rule at all. The CRA says the treatment is “specific to the terms of the particular contract” (folio 1.7).

Worth knowing if you’re reading older advice: the folio has been the governing chapter since February 3, 2022, and it replaced and cancelled Income Tax Technical News, Issue No. 43. Pages still citing that bulletin are working from guidance the CRA pulled.

Does the Article XVIII(7) election make my Roth tax-free or just tax-deferred?

Just tax-deferred, and that split is where most of the writing on this goes wrong. Article XVIII(7) lets a person elect to defer taxation on income accrued in the plan but not distributed, until a distribution is made. It switches off the annual accrual tax and does nothing else. The paragraph that makes a distribution tax-free in Canada is Article XVIII(1), which exempts a pension to the extent the payment would be excluded from taxable income in the US if you were resident there. So someone who files the election and later takes a payout the US treats as non-qualified has deferral without exemption.

“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 Convention, Article XVIII(7), as replaced by the Fifth Protocol)

“Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.” (Article XVIII(1), as replaced by the First Protocol)

A Roth counts as a “pension” for this article because Article XVIII(3)(b) says so expressly, in text the Fifth Protocol put there. Folio 1.11 turns XVIII(1) into a two-part test: the payment wouldn’t be taxable in the US if you were resident there, and the Roth qualifies as a pension. Notice what that test doesn’t mention. It doesn’t run through the election, which is why the exemption and the deferral have to be tracked separately.

The US leg is the ordinary qualified-distribution rule. The IRS requires the 5-year period plus a qualifying event such as reaching age 59½, disability, death, or a first-home distribution inside the lifetime limit (IRS Publication 590-B), and states the consequence plainly: “If you satisfy the requirements, qualified distributions are tax-free” (IRS, Roth IRAs). Fail the US test and the Canadian exemption has nothing to attach to.

If your money is on the other side of the line, a pre-tax IRA or 401(k) in the same hands runs on completely different rules. There’s also the same treaty paragraph running the other direction, for an RRSP held by a US resident.

What has to be in the election letter, when is it due, and where does it go?

There’s no CRA form. You write a letter carrying eight specific items, sign it, and mail it to the Competent Authority Services Division in Ottawa. It’s due on or before your filing-due date for the tax year in which you became resident in Canada, so the deadline is a one-shot in your arrival year rather than something you catch up on later. The election is one-time and irrevocable, filed for each Roth IRA you own, and where no Canadian tax is currently owing on a particular Roth, the CRA may accept an election filed on a protective basis.

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

Own more than one Roth? Folio 1.17 says the election should include all of that information for each Roth IRA, so nothing gets left off the page.

Timing is set by your own filing-due date, which the CRA publishes and which is not the same date for everyone (CRA, filing due dates). Check yours for the year you landed rather than assuming the general one, and note that the payment deadline and the filing deadline are separate dates on that page.

Mail it to the address in folio 1.18: Competent Authority Services Division, Canada Revenue Agency, 18th Floor, Canada Building, 344 Slater Street, Ottawa, ON K1A 0L5. Once it’s filed there’s no requirement to make another election for later years (folio 1.19), and you keep a copy along with the US tax forms and the account’s records of contributions, conversions, rollovers, income and withdrawals, because the CRA may ask for them (folio 1.20).

What counts as a Canadian contribution, and what does one do to my account?

A contribution made by you or on your behalf while you’re resident in Canada is a Canadian Contribution, and it costs part of the treaty protection rather than all of it. From that moment the account splits in two. The balance immediately before the contribution stays a pension, and distributions out of that part stay exempt. The contribution and everything accruing after it fall on the other side, and what becomes taxable in Canada annually is the income that second part generates. If no Canadian Contribution is ever made, there’s no cap at all and the whole account stays on the protected side.

What goes into the Roth	Canadian Contribution?	Effect on the account
A rollover from another Roth IRA	No (folio 1.14)	Nothing changes
A rollover from a Roth 401(k) arrangement	No (folio 1.14)	Nothing changes
A contribution made before 2009	No (folio 1.14)	Nothing changes
New money contributed while you’re resident in Canada	Yes (folio 1.12)	The account splits at that date
A conversion or rollover from a traditional IRA	Yes (folio 1.14)	The account splits at that date
A rollover from a traditional 401(k) or profit sharing plan	Yes (folio 1.14)	The account splits at that date

Folio 1.12 sets out three consequences, and every one of them attaches to income accrued. Income accruing after the Canadian Contribution stops benefiting from the deferral and becomes subject to Canadian tax on a current, annual basis. Income accrued before it keeps the deferral. Distributions stay exempt to the extent of the balance in the Roth immediately before that first contribution. Folio 1.13 describes the result as two parts: the first “continues to be considered a pension and remains exempt from taxation in Canada (if an Election had been filed)”, and the second “ceases to be considered a pension and becomes subject to Canadian taxation.”

The treaty text is narrower than people assume. Article XVIII(3)(b) bites “to the extent of accretions from such time”, which is why this is a split rather than a whole-account loss. The IRS says the same thing from its side: “you cannot defer tax on any accruals due to contributions made after you become a Canadian resident” (IRS Publication 597).

Which of these four situations are you in?

Two facts set almost everyone’s answer: whether the election was filed, and whether a Canadian Contribution has been made. The table runs all four combinations across the annual tax, distributions, the foreign reporting forms and the next move. Read your own row rather than the page as a whole, because state B is the one people get backwards.

Your state	Canadian tax on income accruing inside	Canadian tax on distributions	T1135, T1141, T1142, T1134	Next move
A. Election filed, no Canadian Contribution	Deferred under Article XVIII(7), to the extent the income is accrued and not distributed (folio 1.9)	Exempt to the extent the payment wouldn’t be taxable in the US if you lived there and the Roth qualifies as a pension (folio 1.11)	Not required by the CRA on those forms while both conditions hold (folio 1.22)	Keep the election copy and the account records the CRA may ask for (folio 1.20)
B. Election missed, no Canadian Contribution	Taxable in Canada annually as it accrues, with the amount depending on the account’s legal form (folio 1.3 to 1.7)	Same two-part test as state A, because folio 1.11 states it without reference to the election	Must be included as applicable, since one of the two conditions fails (folio 1.23)	File it; a protective election may be accepted where no Canadian tax is currently owing (folio 1.15), and if the window has passed the question goes to Competent Authority (folio 1.21)
C. Election filed, then a Canadian Contribution	Deferred on income accrued before the contribution, taxable annually on income accrued after it (folio 1.12)	Exempt to the extent of the balance immediately before the first Canadian Contribution (folio 1.12)	Must be included as applicable, since the no-contribution condition fails (folio 1.23)	Pin the pre-contribution balance and keep the records that prove it (folio 1.20)
D. Election missed, and a Canadian Contribution	Taxable in Canada annually on income accrued, from the start (folio 1.3, folio 1.12)	Same folio 1.11 test, and exempt at most to the extent of the balance immediately before the first Canadian Contribution (folio 1.12)	Must be included as applicable, since both conditions fail (folio 1.23)	Pin the pre-contribution balance, then take the late-election question to Competent Authority (folio 1.21)

The cell people get wrong is state B’s distribution column. The exemption sits in Article XVIII(1) and the deferral sits in Article XVIII(7), and folio 1.11 states the distribution test without reference to the election, so skipping the election costs you the deferral and doesn’t on its own decide the distribution question.

What if I never filed the election, or filed it late?

You don’t fix it by amending a return. The folio routes anyone who missed the window to the CRA’s Competent Authority Services Division at the Ottawa address above, and it treats “the possibility of making a late-filed election” as a question for that office. What the folio gives you is the route. It doesn’t say whether a late election gets accepted, on what conditions, or how long it takes, so treat anyone who quotes you the outcome as guessing. Meanwhile the annual accrual tax has been running since you became resident, so count the years before you write.

“The procedures regarding the Election are administered by the Competent Authority of Canada … contact the Competent Authority Services Division at the address listed in 1.18 or by email at CPMAPAPAG@cra-arc.gc.ca (Only send general enquiries and do not send confidential information).” (folio 1.21)

Do I have to report my Roth IRA on Form T1135?

It depends on the same two conditions, and the relief is the CRA’s administrative position rather than a line you can point to in a return. Where an election has been filed and no Canadian Contribution has been made, the CRA doesn’t require Roth IRA information on Form T1135, T1141, T1142 or T1134. Fail either condition and the folio puts the Roth back on those forms as applicable. The T1135 itself is triggered where you hold specified foreign property costing more than $100,000 at any time in the year, and it’s due on the same date as your income tax 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 is the other half: where an election hasn’t been filed or a Canadian Contribution has been made, the Roth goes on those forms as applicable, and the folio adds that “the references in the forms to a U.S. Individual Retirement Account (IRA) applies only to traditional IRAs, not Roth IRAs.” The trigger and the deadline for the T1135 itself come from the CRA’s own Foreign Income Verification Statement page.

Here’s the part nobody says out loud. The CRA grants this relief administratively in the folio and doesn’t rest it on any exclusion in the Act, so the underlying statutory question, whether a Roth IRA sits inside or outside the definition of specified foreign property, is unsettled on the published guidance. You’ll find both flat answers online, that IRAs are exempt from T1135, and that the Act carries no retirement carve-out that could ever reach one. Both go further than the CRA has published, and neither one changes what you file, because what you file turns on the two conditions above. Reporting is where cross-border files quietly go wrong, which is also the mirror-image reporting question for a Canadian account in US hands.

What should I do next?

Pull three things out of your records: the date the Roth was established, the date you became a Canadian resident, and whether anything has landed in the account since. If nothing has, the whole account is on the protected side and your job is the election letter plus keeping the records. If something has, the number that matters is the balance immediately before that first contribution rather than your residency-date balance, so pin it now while the historical statements are still easy to get. Then check your filing-due date for the year you landed.

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