RRIF Withdrawals Complicated by Exchange Rate Fluctuations

[NKy586]

I’m looking for advice on how to report an RRIF withdrawal on my US return in a situation where there has been significant currency fluctuation. Assume that I have filed the appropriate tax forms each year to defer the gains in the RRIF.

Hypothetical example: Let’s say I emigrated from Canada to the US a few years ago and had $100K ($CDN) in an RRSP/RRIF, and the exchange rate at the time was par. As I prepare to take a withdrawal this year, the market value is $120K ($CDN), but the current exchange rate is 0.75 so the market value in $US is $90K.

On my US return next year, will the reportable income be:

(A) (120-100)/120 = 1/6 x Withdrawal x Current exchange rate? or
(B) 0 since the current market value in $US is less than it was when I emigrated?

If (B), could I even go as far as to claim a capital loss?

[nelsona]

To determine the US-taxable portion of your RRIF withdrawal every year, you need the following info (all is in US dollars):

BOY: The FMV of your RRIF on jan 1 of the year.
NT: The remaining non-taxable balance of your RRIF.
G: The gross amount of your withdrawal for the year.

The taxable portion of your RRIF withdrawal would be:
G * (1 - NT/BOY); the result cannot be less than zero.

In your case the NT is the original amount, NT=$100K
Lets say that the FMV at jan 1 2016 was BOY=$90K in your example

Let's say you took out $10K
Your taxable portion would be 10 * (1-100/90) which would be zero.
You then reduce your remaining nontaxable portion by the portion that was non-taxable (in this example $10K) for next year's calculation.

You cannot claim a loss until the RRIF is completely collapsed. The whatever residual non-taxable portion you have left would be a terminal loss on schedule A.

[NKy586]

Thanks for the help.