Streamlined Program - Impact on HBP / 8891 / Treaty

[RainCity]

Facts:

1.) US citizen living in Canada going through the streamlined program (will file 2010, 2011 and 2012);
2.) Withdrew $25k from RRSP in 2012 under HBP
3.) I understand that the $25k is not taxable in the US under Article 18 of the treaty
4.) However, after spending some time on this forum, I learned that I have to report the deferred gain on the RRSP in 2012 as a a result of the HBP withdraw.

Questions:
1.) If I file Form 8891 to defer the gain on my RRSP in 2010, 2011, and 2012, would I only pick up those gains in 2012? What about for prior years that the streamlined program doesn't cover?

2.) If I am taxed in the US on the deferred gain, where is my foreign tax credit offset? (i.e. I did not pay Canadian taxes on the deferred gain since all of the growth in my RRSP was reinvested into the plan.)

Thanks.

[nelsona]

1. You would need to include all gains from previous years, upto $25K of course.

2. Unfortunately there is none. HBP is not a good idea for US citizens. Known issue. Sorry.

[nelsona]

What you can do for IRS, as with any regular RRSP withdrawl, is pro-rate the taxable an non-taxable portion (for IRS puposes).

Example. You contributed $100K to your RRSP over the years. The day you took $25K HBP, it was worth $150K.

Even though you have "deferred" $50K of growth, you only need to report:
50/150 * 25K, or $8333 as taxable.

You would add this amount to your "contributions" for future calculations. Of course, this means you cannot add the future repayments to your contributions, only "fresh" non-employment-sponsored RRSP contributions.

[nelsona]

http://forums.serbinski.com/viewtopic.p ... 5e550bd0f7

My answer to that still stands, however, for those who have amassed growth in their RRSP before using HBP, withdrawing out the HBP tax-free may be a short-term answer, but could potentially increase your tax down the road, which may be ok with you.

It really comes down to how much US tax are we talking about, ie. how much of your current RRSP did you use for HBP, and how much had it grown beforehand.

[RainCity]

Thanks. If the streamline program only goes back three years, it might make sense for me to NOT defer the gain on the RRSP so that the entire HBP withdraw is a nontaxable (US and Canada) in 2012. But I guess that would all depend on how big those gains are in 2010 and 2011.

Does this logic make sense?

[nelsona]

The problem is the previous years. although you won't be taxed right now on, say, 2010 internal RRSP income, that income was not reported, so in essence the tax was deferred, and you cannot claim that you added it to your cost basis.

[nelsona]

I meant to say 2009 income (and before).

All income that you have not reported is deferred.

[nelsona]

I think if you gave me some numbers, I might get a better sense of what your choice should be:

Contribution over time:
Value of RRSP day before you took the HBP:
2010-2012 RRSP income that you would need to report if you decided not to defer:

Beware however, that by not deferreing, you (a) would owe US tax immediately on 201-12, and (b) you might disqualify yourself from streamlined method. So, I would not be trying to get to cute by not deferring.

[RainCity]

Ok. Thank you again. Let me see if I can dig up the old statements and get more precise numbers.