We are a Brit and a Canadian, with 30 years in the US, now both retired 65+ and living in Canada for the last three years. We both renounced our Green Card status in 2009, and we filed 1040NRs for the 2010 tax year.
We have pension income from the UK and the US, social security from the US, and some withdrawals from one of our three IRAs. We paid 15% US taxes on my US income last year, and claimed the corresponding tax credit on my Canadian return.
Our major concern is that we have no savings or income from Canadian sources, so we are subject to the whims and vagaries of exchange rates and eventually of US estate taxes. So we plan to move about half of our IRA funds to Canadian RRSPs over the next 2-3 years.
From reading the CRA and IRS documents and the tax treaty, it looks like the ideal sum for us to transfer in any year is around $100000. I would pay $15000 US tax and transfer the remaing $85000 into an RRSP. The $15000 would be added to my taxable income in Canada, but I would have about $15000 in tax credits to offset the taxes due on the rest of our income. From our experiments with Ufile, it looks like we would end up paying just a thousand or two in Canadian taxes. We’d then repeat the exercise in following year(s) until the savings were sufficiently diversified.
My reason for posting this is that the plan looks too good to be true. Is there some technical glitch we’ve overlooked? Thanks in advance.
Diversifying IRAs into an RRSP
Moderator: Mark T Serbinski CA CPA
1. You need to have about 50K of other CANADIAN SOURCE income to do this. you shouldn't include any of the foreign income you report (including the leftover IRA income) in determining whether this is viable.
2. The directive that covers this stipulates tha this MUST be a lump-sum withdrawl of the IRA, not periodic. I would easily argue that 3 BIG withdrawals to collapse an IRA is NOT periodic, but CRA might disagree.
3 .Since you are now going to take BIG withdrawals from your IRA, the IRS (thru the IRA manager) could decide that these payments are NOT periodic, thus making them subject to 30% withholding., perhaps forcing you to file a 1040 (reprting worldwide income -- as is your right as a Cdn resident) to get a lower taxrate. You would need to clear this with the IA firm. If your taxrate as 30%, then you need even more Canadian income for this to be wortwhile.
So, you need to be sure that US will treat your IRA disribution as perioddic, but that CRA will not. Tricky situation.
2. The directive that covers this stipulates tha this MUST be a lump-sum withdrawl of the IRA, not periodic. I would easily argue that 3 BIG withdrawals to collapse an IRA is NOT periodic, but CRA might disagree.
3 .Since you are now going to take BIG withdrawals from your IRA, the IRS (thru the IRA manager) could decide that these payments are NOT periodic, thus making them subject to 30% withholding., perhaps forcing you to file a 1040 (reprting worldwide income -- as is your right as a Cdn resident) to get a lower taxrate. You would need to clear this with the IA firm. If your taxrate as 30%, then you need even more Canadian income for this to be wortwhile.
So, you need to be sure that US will treat your IRA disribution as perioddic, but that CRA will not. Tricky situation.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
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