My wife immigrated to the US from Canada in November of 2014
From the posts on these forums, I was able to complete our taxes for 2014 including her income and the corresponding tax exemption.
In going through additional posts I have become aware that it appears we need to declare her 3 canadian accounts to the IRS via form 8938 and FBAR - She has a canadian checking account (<10k), RRSP (apx 60k), and LIRA (apx 160k).
I was reading and in some cases it has been suggest that cashing those out and moving the funds to the US would be a viable option. but I was also under the impression that she would need to have residence here for 2 years before she could do that (understanding the 1 time CRA 25% tax hit).
I would like to know what our options are for being compliant with US laws, if we needed to also do an FBAR last year (june 2015), and if so, can we backfile without getting into any sort of civil trouble (streamlined or OVDP? - it is very confusing to me).
RRSP & LIRA - FBAR vs Cash Out Options?
Moderator: Mark T Serbinski CA CPA
You would have needed an FBAR for your 2014 returns, since she was resident for at least part of the year.
I would not bother with OVDI or OVDP or anything else. Just file the FinCEN for that year and this year and see what they do. She isn't eligible for streamline since she is US resident.
As long as she correctly files her 2014 departure return in Canada, she was non-resident from that day and could collapse her RRSP at that time at the 25% taxrate. Her LIRA might require a residency determination form form CRA (NR73) but, again, that could have been done in December 2014. The rules for when she can collapse her LIRA depend on where the LIRA was written up (ie. whom she worked for), that might be where the 2 year rule comes in, but it is not standard.
As to the wisdom of collapsing these accounts, we have spoken of this many times, and is very much age dependent. If she is over 50, then she should be looking at leaving these accounts as pensions and withdrawing them at the 15% tax rate whenever that becomes possible. With an RRSP, this can be done at any age, by converting to a RRIF and withdrawing 10% of its value yearly.
On the US side, an RRSP carries little taxable income because, unless it was an employer-sponsored RRSP, the value before arrival in US (or in your wife's case, before Jan 01, 2014) can be taken US tax-free. The lira however is 100% taxable in US upon withdrawal. This usually means that there is some US tax even after the 25% Cdn tax (if taken now) and that tax is credited on your return. so it is important to withdraw these funds at the 15% tax level (or lower if she is not working).
I would not bother with OVDI or OVDP or anything else. Just file the FinCEN for that year and this year and see what they do. She isn't eligible for streamline since she is US resident.
As long as she correctly files her 2014 departure return in Canada, she was non-resident from that day and could collapse her RRSP at that time at the 25% taxrate. Her LIRA might require a residency determination form form CRA (NR73) but, again, that could have been done in December 2014. The rules for when she can collapse her LIRA depend on where the LIRA was written up (ie. whom she worked for), that might be where the 2 year rule comes in, but it is not standard.
As to the wisdom of collapsing these accounts, we have spoken of this many times, and is very much age dependent. If she is over 50, then she should be looking at leaving these accounts as pensions and withdrawing them at the 15% tax rate whenever that becomes possible. With an RRSP, this can be done at any age, by converting to a RRIF and withdrawing 10% of its value yearly.
On the US side, an RRSP carries little taxable income because, unless it was an employer-sponsored RRSP, the value before arrival in US (or in your wife's case, before Jan 01, 2014) can be taken US tax-free. The lira however is 100% taxable in US upon withdrawal. This usually means that there is some US tax even after the 25% Cdn tax (if taken now) and that tax is credited on your return. so it is important to withdraw these funds at the 15% tax level (or lower if she is not working).
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