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Author: FrancisdeR Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1193  
Subject: Must RRSP be reported by US Citizen? Date: 6/18/2007 7:54 PM
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I left Canada in 1986.

For the nine months that I worked in Canada in 1986 (for my US employer, while I was waiting for Visas), I got a small amount of pension credit. I had it converted to a lump sum and transferred to a Rollover RRSP. At the time, the sum seemed trivial. Just this year, its value exceeded US$10,000.

My question is whether or not I have to fill out an IRS form TD F 90-22.1. As usual, the IRS material is written so badly that you can't tell whether it applies to RRSPs or not.

If anyone is familiar with this situation, I would appreciate your insights.

Thanks,

Francis

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Author: Spiffy99 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1117 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 6/18/2007 9:28 PM
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I also have a RRSP from a pension rollover (Locked-In Retirement Account, or LIRA).

You are supposed to report any earnings that were generated inside the RRSP in the year that they were earned. So any interest earned or dividends paid, capital gains from the sale of a security, etc should have been reported. HOWEVER, you can "elect to defer" the tax on these earnings and so keep the RRSP completely tax sheltered. In the past you included a letter with your US tax return stating that you were taking advantage of provisions in the US-Canada Tax Treaty, blah blah... But a few years ago the IRS came out with Form 8891:

http://www.irs.gov/pub/irs-pdf/f8891.pdf

The new form gives you "amnesty" for all past unreported earnings by allowing you to make an "irrevocable election" to defer them (line 6).

Basically, just fill in the 2007 version of this form next year, declare the RRSP and account for any undistributed earnings (line 10) and you are free and clear. Going forward, you need to file Form 8891 any year you have earnings within the RRSP (not an increase in value, just interest, dividends, etc even if re-invested).

Note that if you live in a State with an income tax, they may not recognize the RRSP. In California, the "undistributed earnings" in my LIRA have to be reported as income and I pay state tax on them each year.

Spiffy

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Author: spongeLarry Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1118 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 7/2/2007 11:28 PM
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This doesn't make any sense.

I wonder if anyone could explain this to me? In order to make an RRSP contribution in the 1st place, it must be done with income earned in Canada. Therefore, why would the US government have any interest in accounts generated from exclusively Canadian earned sources?

The "irrevocable election" to defer them sounds like you're saying "Here's my RRSP $$$ in Canada, now I'll be quiet for the rest of my life. See ya" to Uncle Sam. Again, if this is an option, whynot just forgo the whole mess? Why have form 8891 at all? What's the point?


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Author: Spiffy99 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1119 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 7/3/2007 12:30 AM
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This doesn't make any sense.

I wonder if anyone could explain this to me? In order to make an RRSP contribution in the 1st place, it must be done with income earned in Canada. Therefore, why would the US government have any interest in accounts generated from exclusively Canadian earned sources?

The "irrevocable election" to defer them sounds like you're saying "Here's my RRSP $$$ in Canada, now I'll be quiet for the rest of my life. See ya" to Uncle Sam. Again, if this is an option, whynot just forgo the whole mess? Why have form 8891 at all? What's the point?


It's for if you ALREADY have the RRSP before you move to the USA. If you choose to keep the RRSP in place when you move to the USA then you have to declare any future income generated within the plan. The 8891 allows you to elect to defer tax on the income by invoking the US-Canada tax treaty. The RRSP is a creature of the Canadian Government and is not automatically recognized as a tax sheltered plan outside of Canada.


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Author: spongeLarry Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1120 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 7/3/2007 4:26 PM
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But the RRSP is still physically located in Canada at a Canadian institution. Its still not "outside of Canada". The income generated within the plan is generated in Canada and from contributions earned in Canada.

Just because you move to the U.S. does not make your Canadian savings subject to US income tax. You're responsible only for income earned in the US.

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Author: Spiffy99 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1121 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 7/3/2007 8:33 PM
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You're responsible only for income earned in the US.

Not true. The US taxes all your income worldwide. Unless you go out of your way to hide it in offshore accounts (like, say, the Caymans). But then that would be breaking the law.

Expatriate Americans are technically obligated to pay taxes to Uncle Sam no matter where they live. In fact, the IRS will even make a claim on resident aliens' income even after they leave the US if they had worked in the US for more than 10 years.

Canada will also claim tax on your worldwide income unless you break substantially all financial ties with Canada after you leave Canada (bank accounts, credit cards, even property).

Spiffy


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Author: spongeLarry Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1122 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 7/3/2007 11:17 PM
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Hmmm... I was very diligent in reading the instructions to the 1040 and 1040NR forms. I didn't see any reference to form 8891. Well, I know now so I'll submit that one next year.

Say, Spiffy, I got another question: I'm about to transfer my pension to a locked-in RRSP at CIBC and there is an excess amount I can't transfer and this excess exceeds my RRSP contribution room, so I have to take this excess as cash. Of course they will subtract the tax. I'm a U.S. resident now. This cash should be reported on my Canadian income tax, so I can recover the withheld tax, right? And there is a spot on the 1040NR, I recall (specifically, page 5, section L) where this can be reported to the IRS.

But for this, or any other income, its either taxed by Revenue Canada or by the IRS, but not both?!? Surely it is not double-taxed?

Any tips on the pension transfer is appreciated.

Have a great 4th of July!

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Author: Spiffy99 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1123 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 7/3/2007 11:24 PM
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But for this, or any other income, its either taxed by Revenue Canada or by the IRS, but not both?!? Surely it is not double-taxed?

I am no tax expert, I just know the stuff that applies to my specific situation (bc I read all the IRS and CCRA docs). But I do know that the short answer is that the US-Canada tax treaty was written to prevent double taxation. So if you pay 25% tax to Canada then that 25% is considered "paid" by Uncle Sam. However if Uncle Sam taxes that kind of income at 30% then you have to make up the extra 5% to him. Usually though the US tax rates are lower than the Canadian ones so it is normally not an issue.

Spiffy


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Author: 5048 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1125 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 8/1/2007 3:38 PM
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Two comments:

(1) Canada only taxes income from Canadian sources (and all such income, regardless of your residence status). If your only Canadian-source income is from a tax-deferred plan, there are no Canadian tax issues. But if you withdraw money from that plan or have other Canadian-source income, tax will be withheld at the source and you have to file a Canadian return to get it back. The default withholding rate varies with the amount of income from 10% to 30% (if you claim US residence for tax purposes). By the way Canadian exemptions are generous, so you will get a refund.

(2) If as a US permanent resident or citizen you don't report RRSP earnings on From 8891, the IRS can charge you with tax evasion - i.e. intentionally understating your worldwide income. The fact that you would have paid no tax if you had filed Form 8891 doesn't matter, but your intent to hide income by not filing the form does. So unless you have a compelling reason not to, you should file Form 8891.

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Author: ericvschultz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1126 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 8/2/2007 3:11 PM
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(1) Canada only taxes income from Canadian sources

Canada actually taxes you on your worldwide income. If you had income from a foreign country, and paid taxes there, you'll be able to claim the foreign taxes paid, so that you don't end up in a "double taxation" situation.

I've worked in the US a few times over the years, and once in Germany, and had to claim that income on my Canadian taxes. As well, I own US dividend paying stocks through various DRIP plans and even though that income comes from the US, I still have to claim it on my Canadian taxes (of course, I can deduct the foreign tax withholdings).

Eric

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Author: spongeLarry Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1143 of 1193
Subject: Re: Must RRSP be reported by US Citizen? Date: 3/22/2008 2:17 PM
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ok, so I'm filling out form 8891 for the 2007 tax year. This form is exclusively for an RRSP or an RRIF. What about other retirement vehicles? In my case, its a LIRA I want to declare, but I can't because box 4 only has options for an RRSP or RRIF.

Am I off the hook, or do I write-in "LIRA" in the margins? I tend to think that the intent of 8819 is for all retirement vehicles, so I should use it for my LIRA, but I don't want to do something wrong.

Thx!

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