Hi everyone,
Our situation is: My husband is an H1B, and I've been an H4 since 01/01/2009 and currently not working. We plan to stay in the US indefinitely, and are in stage 1 of our green card application. We're moving our tax home to the US for 2009, have cancelled our DLs, healthcare in Ontario and are trying to get our bank account status changed to non-resident for tax purposes.
I have about $20K in RRSP (which has lost $, originally invested $25K). We would like to buy a house later this year and use our RRSPs for the downpayment. I guess it is worth about $15K US. As an H4, am I allowed to cash out my RRSPs since this will be a type of income? I'm not earning anything in the US or Canada in 2009, I thought it might make sense to withdraw it now since my income is otherwise $0. Is this a good idea? Also, if anyone has a sense of how much $ I'd actually see at the end of this process, it would be a big help. If we end up losing more than 50% of the value than it just doesn't seem worth it. We may just have to save up our US income slowly and wait until next year to buy a house.
Thanks very much!
Cashing out RRSP while on H4, good idea?
Moderator: Mark T Serbinski CA CPA
I am a BIG believer in having non-working spouses withdraw at least an ammount equivalent to their "personal exemption" on their CDn tax return, buy using the section 217 provisions of the Cdn tax code.
You should read more about section 217 on the CRA website.
Since you are not working, you are permitted to treat your RRSP withdrawal just like you would as if you were in canada: include it in regular income and pay tax in thta way (rather than the flat 25% you would pay as a non-resident).
The process is simple: you withdrawe say 10K and pay 25% tax. then next spring you file a 217 return with CRA and get that 25% back. If you file an NR5 now for 2009 and later for 2010, you could even see the withholding reduced to almost nothing.
But, to avoid cdn tax you will have to spread this out over 2 tax years.
And don't worry about your bank account status. What you need to get changed is the status of your RRSP. They need to know that you are both non-resident.
Youare already non-resident for cdn tax purposes.
For US, since you will not have made any money on your RRSP since you moved, you will not owe any US tax (you will file an 8891 in both years).
You should read more about section 217 on the CRA website.
Since you are not working, you are permitted to treat your RRSP withdrawal just like you would as if you were in canada: include it in regular income and pay tax in thta way (rather than the flat 25% you would pay as a non-resident).
The process is simple: you withdrawe say 10K and pay 25% tax. then next spring you file a 217 return with CRA and get that 25% back. If you file an NR5 now for 2009 and later for 2010, you could even see the withholding reduced to almost nothing.
But, to avoid cdn tax you will have to spread this out over 2 tax years.
And don't worry about your bank account status. What you need to get changed is the status of your RRSP. They need to know that you are both non-resident.
Youare already non-resident for cdn tax purposes.
For US, since you will not have made any money on your RRSP since you moved, you will not owe any US tax (you will file an 8891 in both years).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for the quick reply!
Let me see if I understand this:
So, first I would notify the banks to change my RRSP status to non-resident. Then, I can withdraw the personal exemption amount (e.g. $9K) and pay the non-resident withholding tax. Whatever is left would be sent to me in the US in the form of a cheque in Canadian funds. In 2010, I would file taxes in Canada as a Canadian non-resident and list $0 income. I would file a section 217 to try and claim part of the withholding tax back, and hopefully the CRA will send me a cheque for some of this money. Then, I'd file a US 1040 and list the money I got from my cashed out RRSP, and also claim the 25% withholding somewhere on the return which will lower my overall income.
Does this sound right?
Can they deposit the RRSP into my Canadian account, and then I can use a custom broker to convert the funds (I heard they have better rates)
Thanks for the input!
Let me see if I understand this:
So, first I would notify the banks to change my RRSP status to non-resident. Then, I can withdraw the personal exemption amount (e.g. $9K) and pay the non-resident withholding tax. Whatever is left would be sent to me in the US in the form of a cheque in Canadian funds. In 2010, I would file taxes in Canada as a Canadian non-resident and list $0 income. I would file a section 217 to try and claim part of the withholding tax back, and hopefully the CRA will send me a cheque for some of this money. Then, I'd file a US 1040 and list the money I got from my cashed out RRSP, and also claim the 25% withholding somewhere on the return which will lower my overall income.
Does this sound right?
Can they deposit the RRSP into my Canadian account, and then I can use a custom broker to convert the funds (I heard they have better rates)
Thanks for the input!
Not quite.
You will withdraw the funds and pay 25%. next spring, you file a non-resident return using the 217 election, on which you REPORT the whole RRSP withdrawal (ie $10K). But you also get to claim any deductions, and the RESULT will be no tax owing, in which case you get all your withheld tax back.
For youyr 1040, you will determine any US-taxable income (there should be little or none), but since you will have paid no Cdn tax (remember it would all be refunded) you don't claim any creit or deduction for Cdn tax paid.
As to how you then get this money, yes, the best solution is to have it deposited to your Cdn bank account, and then converted or transfered to your US account, making sure the exchange is NOT done by the US bank.
The worst thing you can do is take the C$ check to a US bank and get them to convert it.
You will withdraw the funds and pay 25%. next spring, you file a non-resident return using the 217 election, on which you REPORT the whole RRSP withdrawal (ie $10K). But you also get to claim any deductions, and the RESULT will be no tax owing, in which case you get all your withheld tax back.
For youyr 1040, you will determine any US-taxable income (there should be little or none), but since you will have paid no Cdn tax (remember it would all be refunded) you don't claim any creit or deduction for Cdn tax paid.
As to how you then get this money, yes, the best solution is to have it deposited to your Cdn bank account, and then converted or transfered to your US account, making sure the exchange is NOT done by the US bank.
The worst thing you can do is take the C$ check to a US bank and get them to convert it.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Ok, I think I'm starting to get it. :)
The RRSPs would be declared as Canadian income on my Canadian non-resident return in 2010, and I would file the 217 at that time to claim a deduction against the whole amount.
On my 2010 US 1040, I would put $0 income...but wait, how do I know if the CRA has granted the 217 if I'm filing both US and Canadian returns around the same time? Would I have to do one way before the other?
The RRSPs would be declared as Canadian income on my Canadian non-resident return in 2010, and I would file the 217 at that time to claim a deduction against the whole amount.
On my 2010 US 1040, I would put $0 income...but wait, how do I know if the CRA has granted the 217 if I'm filing both US and Canadian returns around the same time? Would I have to do one way before the other?
Just to clarify, your Cdn return would be the 217 election. If you don't make the election, you don't file a return, and you simply accept the 25% tax. That would be what your husband would do if he withdrew funds from his RRSP: he wouldn't qualify for 217, so would not file a return.
Now that you left canada, there will not be very many instances when you would need to file a Cdn tax return. For example, I've lived in US 9 years and have neverhad to file a Cdn return in that time: you only file if you work in canada, rent out real estate (section 216), sell Cdn real estate, or, as in your situiation, make an election to treat your pension income as a resident (217).
You file your 2 returns based on how you calculate them. If soemthing needs to be corrected later, you amend the other return.
Now that you left canada, there will not be very many instances when you would need to file a Cdn tax return. For example, I've lived in US 9 years and have neverhad to file a Cdn return in that time: you only file if you work in canada, rent out real estate (section 216), sell Cdn real estate, or, as in your situiation, make an election to treat your pension income as a resident (217).
You file your 2 returns based on how you calculate them. If soemthing needs to be corrected later, you amend the other return.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best