Canadian Tax Filing Options for RRSP/RRIF Non-Resident
I've done plenty of research and think I have a handle on this, but I need a few answers I cannot find online.
Background: My wife is a non-resident Canadian with a $200,000 RRSP GIC maturing soon. She is semi-retired and currently has a US income of $16,000/yr ($8000 net, $8000 401k). I'm a retired US citizen on social security for income of about $20,000/yr. Together we file US taxes jointly and don't file Canadian taxes as her RRSP is her only assets in Canada. My wife is 57 and and we are considering withdrawing income from the RRSP to increase our retirement quality of life during our younger years.
The following are our options, but I'm not sure how they play out regarding tax filing.
Option 1: Renew the RRSP, wait till she completely retires and has no income. Easiest route, but delaying income till later could push us into a higher tax bracket when US retirement entities kick in.
Option 2: Cash in the RRSP, take home $150,000 (-25% withholding by bank, no tax filing) and not look back. This seems extreme, especially if we have to add the $150k to our US income tax burden.
Option 3: Convert some or all of the RRSP to a RRIF. From what I read, she can remove 2x the minimum withdrawals or 10% of the RRIF value, whichever is greater and only pay 15% withholding tax. For her age the 10% comes out greater for most years.
Question 3a: Based on what I read, the CRA says the bank should reduce the withholding to 15% based on the tax treaty. Do they do this or will they withhold 25% and force us to file with CRA to get a 10% refund?
Question 3b: Is the 15% withholding the ONLY tax obligation for the RRIF income or will we have to still file a Canadian tax return each year anyway?
Question 3c: If we do have to file a Canadian tax return, will they require us to also file Sec 217 and/or what income will be used to calculate any tax over and above the 15%? My SS income, her 401K?
Basically, we are willing to forego some taxes, within reason, to avoid a very complicated tax filing task that, frankly, is ridiculously complicated.
Ideally, for us, it would be nice if the bank would take the 15% and we could walk away with no tax filing in Canada.
Any advice would be appreciated.
Canadian Tax Filing Options for RRSP/RRIF Non-Resident
Moderator: Mark T Serbinski CA CPA
First off, please realize 2 things:
1. While her RRSP is fully taxable in Canada upon withdrawal, only a portion of it would be taxable in US. This would be based on what the RRSP was worth when she became a US taxpayer.
2. Her investments in her RRSP are not limited to GICs. She should have moved her account to a broker and would then be able to invest in a wide range of investments. Even now, her RRSP should not be in one single maturing GIC. She should have "laddered" it years ago to space out maturities year after year. She isn't "renewing her RRSP", she is renewing the GIC in her RRSP (or RRIF), so should split it up in any event.
she really has 2 options. Option 1 is not really an option, since she would convert to RRIF to take it a little at a time., which is what ypu refer to option 2.
2. Take the money from an RRSP and pay 25% to Canada (and a little more to US and state, but not very much) regardless of how much or little she takes.
3. Convert to RRIF and pay 15% to Canada (and a little more to US and state) by withdrawing 10% per year, treating it like a pension.
At this point I would be choosing option 3. If she were 40 I would say option 2.
your questions;
3a: the bank withholds 25% from RRSP withdrawals of any amount (no reduction is possible), and 15% from RRIFS, if the amounts are 10% or less.
3b. if the RRIF is correctly withheld, no further Cdn reporting is needed.
3c. 217 is never required. it is used only if the taxpayer can reduce their Cdn tax below the 15% or 25% withheld. Based on what you have said about her current US income, she will either not be eligible for 217, or will not benefit, so I wouldn't worry about this.
so, what she needs to do now is
(a) know what her RRSP was worth when she became a US taxpayer.
(b) whether she wants to save 10% over the next 10-12 years or so, or wants to be done with it now.
(c) what type of investments she will put into her RRIF and what Cdn broker to use; having one huge GIC that comes due is never a good idea. he bank has not done her any favours.
Btw, it would not be her Cdn tax return that would be complicated with a RRSP or RRIF withdrawal, it will be her (your) US tax return that will get significantly more complex with figuring out the taxable portion of her withdrawal, and then the foreign tax credit that she is entitled to.
Also, I trust that she knows that at retirement she is entitled to some Cdn CPP and OAS based on her Cdn history, and a spousal SS based on you.
1. While her RRSP is fully taxable in Canada upon withdrawal, only a portion of it would be taxable in US. This would be based on what the RRSP was worth when she became a US taxpayer.
2. Her investments in her RRSP are not limited to GICs. She should have moved her account to a broker and would then be able to invest in a wide range of investments. Even now, her RRSP should not be in one single maturing GIC. She should have "laddered" it years ago to space out maturities year after year. She isn't "renewing her RRSP", she is renewing the GIC in her RRSP (or RRIF), so should split it up in any event.
she really has 2 options. Option 1 is not really an option, since she would convert to RRIF to take it a little at a time., which is what ypu refer to option 2.
2. Take the money from an RRSP and pay 25% to Canada (and a little more to US and state, but not very much) regardless of how much or little she takes.
3. Convert to RRIF and pay 15% to Canada (and a little more to US and state) by withdrawing 10% per year, treating it like a pension.
At this point I would be choosing option 3. If she were 40 I would say option 2.
your questions;
3a: the bank withholds 25% from RRSP withdrawals of any amount (no reduction is possible), and 15% from RRIFS, if the amounts are 10% or less.
3b. if the RRIF is correctly withheld, no further Cdn reporting is needed.
3c. 217 is never required. it is used only if the taxpayer can reduce their Cdn tax below the 15% or 25% withheld. Based on what you have said about her current US income, she will either not be eligible for 217, or will not benefit, so I wouldn't worry about this.
so, what she needs to do now is
(a) know what her RRSP was worth when she became a US taxpayer.
(b) whether she wants to save 10% over the next 10-12 years or so, or wants to be done with it now.
(c) what type of investments she will put into her RRIF and what Cdn broker to use; having one huge GIC that comes due is never a good idea. he bank has not done her any favours.
Btw, it would not be her Cdn tax return that would be complicated with a RRSP or RRIF withdrawal, it will be her (your) US tax return that will get significantly more complex with figuring out the taxable portion of her withdrawal, and then the foreign tax credit that she is entitled to.
Also, I trust that she knows that at retirement she is entitled to some Cdn CPP and OAS based on her Cdn history, and a spousal SS based on you.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thank you for the quick reply.
My wife was already in the US (taxpayer) when she petitioned for splitting her ex-spouse's provincial pension. Her portion became a RRSP and is only 5 years old, so im assuming the initial value is what she got at the time of the split.
At the time of the RRSP deposit, the bank(CIBC) stated that her investment options were limited to money market type assets and we couldn't invest in stocks or mutual funds. The 5 yr GIC had a great rate at the time and we didn't have a lot of time for research. Not sure if we got poor advice back then, but its done. Live and learn.
I'm still concerned that Canadian accounts are insured for only $100,000. This leads me to think that it would be wise to convert just half the RRSP to a RRIF at the same bank, or get two RRIFs at two banks. This way all funds are insured.
Yes, due to the fact that my wife and I will be collecting other retirement income, like CPP, OAS, IRAs, etc, 10+ years from now, it may pay us to go with the RRIF now while our US income is fairly low.
I'm glad to know that the 15% withholding will be the extent of the tax obligation on the RRIFs. The big hurdle now is to be sure our financial institution is knowledgeable in the tax treaty department. I read somewhere that paperwork needs to be filed with the bank every three years to insure the reduction in tax withheld. Is this true?
Any recommendations on where the 10% RRIF payments can reside while waiting for transfer to the US? Again, to avoid having to file a Canadian tax return, im assuming any interest bearing accounts would not be an option.
Thanks again. Your help is invaluable and love the website.
My wife was already in the US (taxpayer) when she petitioned for splitting her ex-spouse's provincial pension. Her portion became a RRSP and is only 5 years old, so im assuming the initial value is what she got at the time of the split.
At the time of the RRSP deposit, the bank(CIBC) stated that her investment options were limited to money market type assets and we couldn't invest in stocks or mutual funds. The 5 yr GIC had a great rate at the time and we didn't have a lot of time for research. Not sure if we got poor advice back then, but its done. Live and learn.
I'm still concerned that Canadian accounts are insured for only $100,000. This leads me to think that it would be wise to convert just half the RRSP to a RRIF at the same bank, or get two RRIFs at two banks. This way all funds are insured.
Yes, due to the fact that my wife and I will be collecting other retirement income, like CPP, OAS, IRAs, etc, 10+ years from now, it may pay us to go with the RRIF now while our US income is fairly low.
I'm glad to know that the 15% withholding will be the extent of the tax obligation on the RRIFs. The big hurdle now is to be sure our financial institution is knowledgeable in the tax treaty department. I read somewhere that paperwork needs to be filed with the bank every three years to insure the reduction in tax withheld. Is this true?
Any recommendations on where the 10% RRIF payments can reside while waiting for transfer to the US? Again, to avoid having to file a Canadian tax return, im assuming any interest bearing accounts would not be an option.
Thanks again. Your help is invaluable and love the website.
If it was a pension, then it is all taxable in US. Personal RRSPs have some untaxed amount.
Banks are not allowed to sell anything to foreign residents, so that is why CIBC sold you a GIC. She needs to move the account. It would have doubled as mutual funds.
Forget the banks. Move it to a brokerage. they can sell you anything including GICs.
She should open a bank account with CIBC (ironically), before she moves her RRSP account. Then the broker can transfer funds from broker to a bank account.
Banks are not allowed to sell anything to foreign residents, so that is why CIBC sold you a GIC. She needs to move the account. It would have doubled as mutual funds.
Forget the banks. Move it to a brokerage. they can sell you anything including GICs.
She should open a bank account with CIBC (ironically), before she moves her RRSP account. Then the broker can transfer funds from broker to a bank account.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing