The good news for people moving from the US to Canada is that the Canada-U.S. tax treaty allows for Roth IRAs to be tax-free on both sides of the border. There is a process to be followed, though. Specifically, you are asked to file an election with the CRA on or before the tax filing due date for the year you became a Canadian tax resident. In addition, you must not make a contribution to your Roth IRA after moving to Canada. What if you find yourself needing to file a late Roth IRA election, or having made a Canadian contribution? Let’s dig into these two questions:

1. Is it possible to file a Roth IRA election with the CRA late?
2. What if I made a contribution to my Roth IRA after becoming a resident of Canada?

Can I File a Roth IRA Election Late?

But what if, for some reason, you didn’t file this election? Is it possible to file it late?

The good news is that the answer to our first question is yes. I can’t find it on the CRA website, but in this email shared by Phil Hogan the CRA says:

We do accept late filed elections without any penalties...as long as no contributions were made while they are resident of Canada, they could file an election.

So if you’ve neglected to file your Roth IRA election with the CRA and you haven’t made any contributions while a resident of Canada, you should be in good shape. Talk to your CPA, but you should be able to file the election and be all set.

What If I Made a Canadian Contribution to my Roth IRA?

That highlighted portion above is really important, though. If you have made contributions while resident of Canada, it’s a different story. You may not be able to file an election, and there isn’t a mechanism to undo the Canadian contribution, as per this CRA response shared by Video Tax News.

Subparagraph 3(b) of Article XVIII of the Treaty provides that the term "pensions" generally includes a Roth IRA, within the meaning of section 408A of the Code. However, if a Canadian Contribution is made to a Roth IRA, subparagraph 3(b) also provides that part of the Roth IRA will cease to be considered a "pension"...Neither the Act nor the Treaty provides any mechanism by which a Canadian Contribution, or the negative tax ramifications of a Canadian Contribution, can be reversed or rectified.

Again, I would absolutely encourage you to talk to an experienced cross-border CPA in this situation, but the response above doesn’t sound promising. Regardless, it definitely emphasizes the importance of not contributing to a Roth IRA after moving to Canada. From the CRA’s perspective, the minute a Canadian contribution hits a Roth IRA, the account is effectively split. The balance that existed up to that first Canadian contribution can be withdrawn tax-free, but the subsequent income, and all withdrawals beyond that balance, are taxable.

As per the CRA:

1.13 Effectively, a Canadian Contribution splits a Roth IRA into two parts – one part consisting of the balance in the Roth IRA immediately before the Canadian Contribution and the other part consisting of the Canadian contribution (and any subsequent contributions) and all income accrued in the Roth IRA after the Canadian Contribution. The first part continues to be considered a pension and remains exempt from taxation in Canada (if an Election had been filed). The second part ceases to be considered a pension and becomes subject to Canadian taxation.

In other words, it isn’t just the Canadian contribution and the income earned on that contribution that the CRA considers taxable, its all of the income earned in the Roth IRA from that part forward.

So the key takeaway here is do not contribute to your Roth IRA after becoming a Canadian resident. If you need to file the election with the CRA late, it shouldn’t be an issue, so long as you haven’t made a Canadian contribution. And if you do find yourself in this situation, it’s worth reaching out to a good cross-border CPA to confirm the particulars.