tax free savings

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 11:20 am

About me: US Citizen worked outside of USA since late 2011, moved to Canada Oct 2014 to work for a Canadian company which is wholly owned by a US based firm. Contract is Canadian, here on NAFTA work permit

Owns real estate in USA - earns < 5k net per year, works (part time) for USA university online = earns <10k>100k per year

Questions:
- Is RRSP considered tax deferred to US taxes as well? RRSP is like 401k?
- Is TFSA considered tax deferred to US taxes as well? TFSA is like Roth IRA?
- I made x last year in Canada since only there < 3 months, I made y outside Canada. When considering my RRSP contributions for 2015, do I add x+y and multiply by 18% to get max or is it just x times 18%.
- Does my employee match count towards my RRSP contribution match?

Thanks for any/all help.

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 11:22 am

Sorry, one line got truncated.
Owns real estate in USA - earns < 5k net per year, works (part time) for USA university online = earns <10k>100k per year

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 11:27 am

Line still truncated
- Owns real estate in USA - earns < 5k net per year,
- works (part time) for USA university online = earns <10k>100k per year

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 11:29 am

frustrated as this is truncating. just say my online teaching is less than 10k and my full time job working for a Canadian entity is greater than 100k.....

sorry for multiple posts.

nelsona · Post by **nelsona** » Tue Oct 27, 2015 11:59 am

1. RRSP is tax-deffered in US.
2. TFSA is NOT tax deffered.
3. Your RRSP limit is determined by CRA, based on the amount of earned income you reported on your 2014 cdn tax return . It is printed on the assessmnet you recieved, or can be obtained from CRA.
4. the match counts towards your limit.

As you know, all your income must be reported in BOTH countries, with credits given on some income in one country and some in the other.

nelsona · Post by **nelsona** » Tue Oct 27, 2015 12:01 pm

There are also various foreign account and asset reporting that IRS requires, which is quite onerous.

nelsona · Post by **nelsona** » Tue Oct 27, 2015 12:14 pm

You likley have a very small contribution limit for 2015. Since this includes your employer match, be careful not to exceed your limit. If you exceed your limit by more than $2000, you will be paenalized monthly until you withdraw the amount.

Best to avoid that situation.

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 2:48 pm

Can we treat the earnings of the TFSA as tax protected then since not tax deferred (similar to Roth IRA)? Note, I have not invested in a TFSA but will have some money to invest since I will be stopping RRSP immediately (see below).

CRA wanted to know how much I made PRIOR to my move here, (which I hadn't shared with them since it was prior to Canada move), thus my question on RRSP limit. So you are saying the 'earned income' must be 'earned' in Canada since my residency began then. Please confirm.

Ok, so I am screwed on this as my total RRSP total is now over the limit given by 5k if I have to include my employer's match (btw, CRA didn't notify me, or pay my refund, until 2 weeks ago - long past when I hit the limit). Suggestions on how to unwind this?

Re: US taxes, yes, USA is onerous on expats. I file the asset form annually and have filed out of country from 2012-14 as was in another part of the world pre Canada.

nelsona · Post by **nelsona** » Tue Oct 27, 2015 3:24 pm

TFSA is not tax "protected" either. US citizens should think seriously before investing in a TFSA, not only because they are not tax-deffered (genarally you will pay sufficient Cdn tax on other investements to alow you to have credit against the tax you wil owe IRS), but because the TFSA is generally considered a trust (requiring 3520 reporting) and the internal investments are subject to PFIC rules. RRSPs are potected from that.

The reason CRA wanted to know your pre-Arrival income was to determine if you could get a full standard deduction (personal amount) for 2014. You weren't eligible anyways, so it was not crucialthat you provide this infor. However, even if you had, it WOULD NOT affect your RSSP limit for 2015, since that is based on earned income you repoted for the period after your arrival in canada (including any US income you should have reported).

To unwind this, you will need to talk to your RRSP trustee, since the withdrawl may affect the matching you recieved. Also, take a look at CRA Form T3012 and T746

Here is a simple article on this:
http://business.financialpost.com/news/ ... contribute

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 4:15 pm

Thanks Nelson. I appreciate your responses. I have not gotten a TFSA but was thinking about it. However, given more forms required (3520), I shall stay away. Side note: I had to fill out form form 5471 for several years because we owned a foreign corp and it was very onerous.

I will contact my trustee to see how to get out of this RRSP issue. Frustrating as the match is one of the draws.

Do you know of any other savings plans I should be looking at to reduce my Canadian taxes and still invest for the future?

Thanks again.

nelsona · Post by **nelsona** » Tue Oct 27, 2015 10:19 pm

Your principle residence.

d_oakville · Post by **d_oakville** » Tue Oct 27, 2015 11:05 pm

Alas, my real estate equity tied up in the USA. I'm Renting here as buying too expensive - to buy where I am at would cause a 2-3x increase over rent.

Paying the 1% penalty per month might be my best option (as I make 100% return with match) given I would only pay it on 8k for 6 months or so. I am still waiting for my employer fiscal agent to return call on options.

Thanks again.

nelsona · Post by **nelsona** » Tue Oct 27, 2015 11:10 pm

Just remember to back down your contributions next year so that the total is 8k less than your 2016 contribution limit.

d_oakville · Post by **d_oakville** » Thu Oct 29, 2015 6:08 pm

Good point. I don't think I will need to back down, though. The original problem is because I only worked 20% of 2015. With my match and adding the 8k, I think I will be right at the limit for 2016. I will go over with my RRSP guy when he calls me back and ensure I don't end up here again.. Thanks

d_oakville · Post by **d_oakville** » Fri Oct 30, 2015 5:29 pm

Ok, one follow up here. I have been told that the matching money is NOT placed in the RRSP and instead in a Pension. I have the capability to move money around in investments in that pension. After I leave the firm, I can keep the Pension or it will go into a LIRA (locked in retirement account) and NOT an RRSP (it can't go there I was told).

-Some have suggested the matching going in this year to the Pension fund will count against NEXT year's limit (and not this year's limit). True or False? (If True I should be ok with the overpayment).
- When I leave the firm, since I don't plan on staying in Canada after retirement, is it better to move the money to the LIRA or keep in the Pension?

Thanks for any guidance

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