Salary Deferrals/Canadian Participant

[Guest greymann]

Under Canadian tax laws, do CODA contributions made by Canadian participants to their 401(k) plan reduce their taxable income? Thanks in advance.

[MWeddell]

"401(k)" refers to a section number in the U.S. Internal Revenue Code, so there's no such plan under Canadian tax law. Employee deferrals to a RRSP will reduce employees' taxable compensation.

Hopefully that answers your question.

[Guest greymann]

Thanks for the response. I wasn't very clear with my question. These people (Canadian citizens) participate in a 401(k) plan, since they are part of a subsidiary to a US company which has decided to include them in the plan. I am assuming that for Canadian tax purposes, the salary deferral contributions that they make will not reduce their taxable income, but I was wondering if anyone had any experience with this.

[david rigby]

I don't think citizenship is the important factor. Is it U.S. income?

[Guest greymann]

It is not US source income.

[Guest bswift]

I'd be careful including Canadian citizens in my U.S. 401(k) plan. Typically, we just set up a "401(k) type" arrangement in canada for canadian employees. While the tax treatment is similar, canada will require you to register the plan in canada.

[Guest DavidL]

I agree. If the income is earned in Canada, Revenue Canada will not allow a deduction unless it has been to a registered plan (RRSP) in Canada.