Serbinski Accounting Firms

Ok thanks so much for clarifying. Just to confirm one more thing - if I lived in the US when I made the contributions to a ROTH IRA or ROTH 401K BEFORE moving to Canada, does the account still lose it's non-taxable status in Canada after the move? In other words, would I have to start paying the tax...

Ok thanks Nelsona, 401K it is then. Based on many of your other posts, I thought you were a big supporter of converting your 401K into a Roth IRA? And what about this article? http://www.jamiegolombek.com/articledetail.php?article_id=815 If they lose their non-taxable status, why would you consider ...

Similar situation as this old post. Canadian citizen and resident in a border town and commute to work in the US. 28 year old professional with annual income of $116,000 USD and foresee this amount being the same or higher for the next 30 years. Place of employment offers an option of 401K or Roth 401K and will match $1 for $1 up to 4% of salary. Is there any reason a Canadian resident in this situation would not take advantage of this “freeâ€￾ money from their employer? What option would be best?

From what I have read on this forum, as of 2009 401K contributions are now deductible on both sides of the border and taxable on both sides upon withdrawal. Roth 401K’s are never taxable in the US, and only the growth is taxable in Canada; but not until it’s withdrawn (provided you complete the annual election to defer the tax on the growth with your T1 General). Does this sound right?

Thanks for confirming!

If I'm in the US less than 183 days and use form 8233 to eliminate ALL withholding tax, do I still need to file a 1040NR and/or treaty return?

There is a chance that I will physically do a small amount of work in the US at some point in the future, so all of this info helps a great deal. Thanks so much! In summary, if I physically start working in the US I need to get a VISA, but still don’t need to worry about paying any tax as long as ...

Ok thanks so much for the info! Will still be living in Canada. The contract work will be done remotely from Canada, so I guess I will need to get a TN visa. So no tax in US as long as I'm not physically present for more than 183 days correct? If so, sounds like I can use form 8233 to improve my cas...

If I’m a Canadian resident working in the US as a contractor, is the customer I provide services to required to withhold tax, FICA or both? If so, and I do not have to pay tax on this income in the US (via treaty), can I file an election with the IRS to have this withholding requirement waived? Fr...

Super, thanks again!

Yes I tend to agree with you. There are definitely a lot of firms trying to get their hands on the US money. It’s a fairly common conversation in the circle of professionals in this area. I’m from a border town, so probably more so because of this. Yeah, a lot of the times if the account is larg...

Thanks so much for the clarification. I noticed the error on the foreign tax credit carryforward as well; which of course decreases the credibility of the article. I do have a PDF from Manulife Financial’s tax department and a PDF from a cross border tax course I took in 2012 from The Knowledge Bu...

I do not believe I’m incorrect on this process. I have read numerous sources on this topic and all of them indicate that only employee contributions from 401K’s can be transferred directly to an RRSP without using RRSP contribution room. However, if you transfer the 401K to an IRA first; you can then transfer both employee and employer contributions from the IRA without using RRSP room. In other words, the employer contributions are “re-characterizedâ€￾ when transferred to the IRA. This is why I mentioned it, but as you pointed out this same logic does not apply to a transfer from a LIRA to an RRSP. However, I suppose in practice, if a LIRA has been unlocked, transferred to an RRSP and crystallized, it would be hard for the IRS to link the origin of the original investment back to the LIRA (this would all take place before moving to the US). Not that I would ever suggest trying this. I agree that there are many inconsistencies between the two systems; I’m trying my best to understand them. Here is a link discussing the 401K issue. I also have some very credible PDF’s on this subject, but this site does not allow me to attach them.

http://www.advisor.ca/images/other/ae/a ... moveit.pdf

I understand that it’s not an election. You said “But to elect to do this would bring a tax mismatchâ€￾ in your last post, so I continued to use this language in my previous post.

So numbers aside, the bottom line is if you can eliminate any tax in the higher tax jurisdiction, this is normally beneficial; eliminating tax in the lower jurisdiction is generally futile. Thanks again for your comments, this was helpful. I appreciate your patience.

Thanks for the great info! My thinking was that the income somehow gets “re-characterizedâ€￾ when it’s converted from a LIRA to an RRSP and therefore would qualify for crystallization. Much like what happens when you convert a 401K to an IRA and subsequently transfer the funds to your RRSP. My understanding is you can transfer the EMPLOYEE contributions that you make to a 401K to your RRSP in Canada without using any RRSP contribution room, but not the employer contributions. The way around this is to first transfer the 401K to an IRA (which “re-characterizesâ€￾ the income) and then transfer the entire IRA to your RRSP without using any RRSP contribution room. I was thinking maybe this same logic applied in the LIRA/RRSP scenario.

You bring up an excellent point about the timing mismatch for foreign tax credit purposes. If I’m a US citizen and resident of Canada when I make the withdrawal from the LIRA, it really doesn’t help me by electing not to be taxed on the pre 2009 employee portion in the US; because the entire amount is taxed in Canada anyway and Canada has higher tax rates.

What if I’m a US citizen living in Canada, commute to work in US and have pre 2009 contributions to a 401K (as I described in my last post)? In this case is there a small advantage (because Canada’s tax rates are generally higher than US rates) of electing not to have CRA tax me on the employee contributions to the 401K made while I was resident of Canada?

Assume tax rate in Canada is 30% and 20% in US. Withdraw $10K, 100% taxable in US and only 50% taxable in Canada. Tax to US is $2000 ($10K*20%) and tax to CRA is $500 ($5K*30% = $1500 - $1000 prorated US FTC) for a combined total of $2500 in US and CAN. If instead I include 100% in Canada, tax to CRA would be $1000 ($10K*30% = $3000 - $2000 US FTC) and tax to US would remain $2000; for a combined total of $3000 in US and CAN. So $2500 total tax if I exempt a portion vs. $3000 if I don’t. Does this sound about right?

Thanks so much for the quick response. That sucks that the IRS discriminates between an RRSP and LIRA, but I suppose this makes sense because your employer contributed to the plan as well. So just to confirm another point, aside from the fact that you can’t crystallize the gain in a LIRA, does thi...

Canadian resident for entire life and I emigrate to the US. Can I “crystalizeâ€￾ the gain in my LIRA (former defined CONTRIBUTION pension plan) account before I go (by making a fund switch) like I can for an RRSP? I understand if done correctly for an RRSP, I would only pay tax to the US on future growth AFTER becoming a US resident. I assume this “trickâ€￾ also works for both 1) a LIRA and 2) Defined CONTRIBUTION pension plan?

On the other hand, does the crystallizing â€￾trickâ€￾ work if I have a defined BENEFIT plan pension and don’t take the commuted value and convert it to a LIRA; but take the monthly pension income instead? In other words, is there a way to “bump-up or crystalizeâ€￾ the gains inside a defined BENEFIT pension plan like there is with a LIRA, defined CONTRIBUTION plan or RRSP?

I assume no because 1) If you are still employed you can’t make any changes to the investments in a defined BENEFIT plan (it’s the employer’s responsibility to manage the investments) like you can in a defined CONTRIBUTION plan (it’s your responsibility to manage the investments) and 2) If you are retired and already receiving your pension, there is nothing you can do with it at this point because it’s basically an annuity.

I’m also aware how 401K’s and IRA’s are taxed in Canada (portion for contributions made while resident of Canada that you did not get deductions for is tax free on withdrawal – as long as you grossed up wages on Canadian side). However, I’m assuming a US pension is fully taxable in Canada and vice versa. In other words, there is no potential for reduced taxation for some of the contributions from a pension or annuity like there is for 401K’s, IRA’s, LIRA's defined CONTRIBUTION plans and RRSP’s?

Can anyone confirm if this is correct?

Thank you so much, you have been tremendously helpful! I assume this is the same for the IRS? Thanks again.