Person, age 60 is Cdn resident US Citizen.
US Pension Income USD 35K.
Cdn Empl Income CAD 40K.
IRA Account Bal. USD. 400K.
A US tax "expert" in Toronto has told them that for a "fee", they will tell them how to make period IRA withdrawals, roll to an RRSP and coincidentally eliminate Canadian tax on the US pension.
I have run the numbers and see no way that this is possible.
My thought is that they should leave the cash in the IRA until they need it.
Does anyone have any ideas what the tax "expert " was thinking of?
IRA Rollover to RRSP
Moderator: Mark T Serbinski CA CPA
The last time I looked at the rules, I concluded the following (note, CHECK this with your personal tax advisor before proceeding!):
• Tax payable on U.S. 1040 at regular tax rates. No tax withholding.
• Taxable income for Canadian purposes to the extent it would be taxable in U.S.
• A Sec 60(j) deduction would be available for the amount deposited into an RRSP within 60 days of the year-end. Therefore, for a full rollover, there would be no net Canadian taxable amount.
• Canadian foreign tax credit available where Canadian tax payable on <u>other</u> income in year. 100% of taxable IRA portion qualifies as U.S. income for purposes of the FTC calculation.
The last bullet is the clincher. Without sufficient other income and therefore, tax payable, the US taxes would be wasted as a credit. Given the size of the IRA, I would expect that this strategy might be successful if applied over a number of years. But careful timing of the transactions is a must!
A question though - why would they want to roll such a large IRA into an RRSP in the first place?? What's the benefit?
Regards,
CRH
• Tax payable on U.S. 1040 at regular tax rates. No tax withholding.
• Taxable income for Canadian purposes to the extent it would be taxable in U.S.
• A Sec 60(j) deduction would be available for the amount deposited into an RRSP within 60 days of the year-end. Therefore, for a full rollover, there would be no net Canadian taxable amount.
• Canadian foreign tax credit available where Canadian tax payable on <u>other</u> income in year. 100% of taxable IRA portion qualifies as U.S. income for purposes of the FTC calculation.
The last bullet is the clincher. Without sufficient other income and therefore, tax payable, the US taxes would be wasted as a credit. Given the size of the IRA, I would expect that this strategy might be successful if applied over a number of years. But careful timing of the transactions is a must!
A question though - why would they want to roll such a large IRA into an RRSP in the first place?? What's the benefit?
Regards,
CRH