I've been reading and reading and reading but still have some confusion about what to do about my RRSP situation. If anyone can clarify or verify my situation I'd appreciate it.
I move from Canada to USA last year and began working in USA March 1st. Worked in Canada Jan & Feb/04. Came back to Canada for a vacation in Nov & cashed in all my RRSP's (about $10,000). I don't know how much interest they earned in '04, but I believe the early cash in penalty ate most of it. Wife still has about $5000 in RRSP's in Canada, hasn't touched them.
Now, from my understanding, this is what I have to do:
1) File CDN taxes, no mention of RRSP cash in since it happened after I became a non-resident of Canada.
2) File US taxes, but no clue what I do about the RRSP withdrawl and wife's RRSPs. From what I can make out, I will be somewhere declaring the RRSP withdrawl as foreign income, and the tax paid as foreign tax credit. I also believe I will be declaring my CDN income and paid taxes as foreign income / tax credits. [xx(]
3) I also believe I will have to declare my wife's RRSP's somehow. She is not working, but I will be filing jointly with her so that I can claim the married credits.
Please let me know if I'm on the right track or lost in space. I'm going to pick up a copy of Turbotax this weekend and start investigating, but I want to know if I'm headed in the right direction first.
Thanks!
Yet Another RRSP Question...
Moderator: Mark T Serbinski CA CPA
<b>If </b> you did not inform your RRSP manager that you were a non-resident, you were probably incorrectly withheld.
You will file your Cdn return as a DEPARTING Cdn, but will not report your RRSP withdrawl on that return.
As to what you report in US, you will have to figure out what earnings you had in Your RRSP after you arrived in US, and report these as interest, capital gains and dividends on your 1040. This should be pretty clear form your quarterly statements.
As rh pointed out, you will likely want to file a full-year 1040 jointly with your spouse, and report all income for 2004 on it. If you do this, you will need to also report any income your RRSP earned in the months before arriving in US, not just post-arrival.
<i>nelsona non grata</i>
You will file your Cdn return as a DEPARTING Cdn, but will not report your RRSP withdrawl on that return.
As to what you report in US, you will have to figure out what earnings you had in Your RRSP after you arrived in US, and report these as interest, capital gains and dividends on your 1040. This should be pretty clear form your quarterly statements.
As rh pointed out, you will likely want to file a full-year 1040 jointly with your spouse, and report all income for 2004 on it. If you do this, you will need to also report any income your RRSP earned in the months before arriving in US, not just post-arrival.
<i>nelsona non grata</i>
Nelsona, I did tell my banker that I was a non-resident but she said it was the same taxation rate -- I wasn't sure of the rules at the time, so I accepted her assesment and they taxed me 20%. Am I screwed now or can this be corrected somehow? I used QuickTax to do my CDN taxes and I'm going to receive a $4000 CDN refund since I had my employer withold extra funds -- could some of this be adjusted to fix my incorrect RRSP taxation?
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>As to what you report in US, you will have to figure out what earnings you had in Your RRSP after you arrived in US, and report these as interest, capital gains and dividends on your 1040. This should be pretty clear form your quarterly statements.
As rh pointed out, you will likely want to file a full-year 1040 jointly with your spouse, and report all income for 2004 on it. If you do this, you will need to also report any income your RRSP earned in the months before arriving in US, not just post-arrival.
</i><hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
So, to get this straight in my head, I'm going to file a full-year 1040 jointly with spouse, report all income for '04, and all "income" from my cashed-in RRSP (incoming being the interest earned & not the full RRSP value) and any income earned from my wife's RRSP (which is still locked and has not been touched) & claim our tax paid on income and RRSP withdrawl as foreign tax credits. Our bank hasn't sent us such a statement yet, only a tax receipt for the RRSP withdrawl. I'll call my banker and ask for this info.
Thanks so much for your help. I'm starting to think that I should probably get my US taxes filed by a pro... at least for this first year anyway. Are any of the tax software packages helpful for all this foreign income stuff?
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>As to what you report in US, you will have to figure out what earnings you had in Your RRSP after you arrived in US, and report these as interest, capital gains and dividends on your 1040. This should be pretty clear form your quarterly statements.
As rh pointed out, you will likely want to file a full-year 1040 jointly with your spouse, and report all income for 2004 on it. If you do this, you will need to also report any income your RRSP earned in the months before arriving in US, not just post-arrival.
</i><hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
So, to get this straight in my head, I'm going to file a full-year 1040 jointly with spouse, report all income for '04, and all "income" from my cashed-in RRSP (incoming being the interest earned & not the full RRSP value) and any income earned from my wife's RRSP (which is still locked and has not been touched) & claim our tax paid on income and RRSP withdrawl as foreign tax credits. Our bank hasn't sent us such a statement yet, only a tax receipt for the RRSP withdrawl. I'll call my banker and ask for this info.
Thanks so much for your help. I'm starting to think that I should probably get my US taxes filed by a pro... at least for this first year anyway. Are any of the tax software packages helpful for all this foreign income stuff?
Getting back to canuck's question about how to handle the CANADIAN tax on his RRSP:
Your departure return should make no mention of the RRSP withdrawal, since it was supposed to be subject to 25% tax and that is that.
So, file your departure return, following the rules set out in the "emigrants" guide. <u>Include neither the RRSP withdrawal, NOR the tax that was withheld on that return </u> (ie. do not submit the T4 that your RRSP manager sent you). Remember to put the correct departure date on your tax return, do NOT leave this blank. This is very important in Quicktax. And remeber to put your province of residence when you left. You were not non-resident for entire year, so you need to file in your province for 2004.
Attach a separate letter to CRA, explaining the error, and submit by separate check, the ammount that was under withheld from your RRSP withdrawal.
Do not e-file. Quick tax shouldn't let you, but just in case, DON'T.
Do not mix the 2 taxes. Do not try to take any refund from your departure return, and apply it to your NR tax. If you owe on both your departure return and your RRSP withdrawal, do not send one cheque to cover both debts. This will merely confuse the issue.
You will report the RRSPs in US on Form 8891. You will not be using the deferral mechanism, since you cashed out. Your wife *could* use the deferral, but since you plan to collapse in 2005 (a good idea considering she has no other income) she should probably decline this option and should merely report her interest/dividends/capgains as outlined on 8891 (Please see the thread on Form 8891 elsewhere).
Her 2005 Cdn return will be what is called a 217 return... more on that when you decide to collapse her RRSP.
Oh, and while most Cdn s/w packages can handle departing returns and even non-resident returns (even u-file), none of the off-the-shelf US pacakages can fully handle the non-resident portion of your return, nor do they provide any of the forms required for RRSP, treaty positions, etc. The would merely be usefl as an introduction to the US tax system, and for future years.
<i>nelsona non grata</i>
Your departure return should make no mention of the RRSP withdrawal, since it was supposed to be subject to 25% tax and that is that.
So, file your departure return, following the rules set out in the "emigrants" guide. <u>Include neither the RRSP withdrawal, NOR the tax that was withheld on that return </u> (ie. do not submit the T4 that your RRSP manager sent you). Remember to put the correct departure date on your tax return, do NOT leave this blank. This is very important in Quicktax. And remeber to put your province of residence when you left. You were not non-resident for entire year, so you need to file in your province for 2004.
Attach a separate letter to CRA, explaining the error, and submit by separate check, the ammount that was under withheld from your RRSP withdrawal.
Do not e-file. Quick tax shouldn't let you, but just in case, DON'T.
Do not mix the 2 taxes. Do not try to take any refund from your departure return, and apply it to your NR tax. If you owe on both your departure return and your RRSP withdrawal, do not send one cheque to cover both debts. This will merely confuse the issue.
You will report the RRSPs in US on Form 8891. You will not be using the deferral mechanism, since you cashed out. Your wife *could* use the deferral, but since you plan to collapse in 2005 (a good idea considering she has no other income) she should probably decline this option and should merely report her interest/dividends/capgains as outlined on 8891 (Please see the thread on Form 8891 elsewhere).
Her 2005 Cdn return will be what is called a 217 return... more on that when you decide to collapse her RRSP.
Oh, and while most Cdn s/w packages can handle departing returns and even non-resident returns (even u-file), none of the off-the-shelf US pacakages can fully handle the non-resident portion of your return, nor do they provide any of the forms required for RRSP, treaty positions, etc. The would merely be usefl as an introduction to the US tax system, and for future years.
<i>nelsona non grata</i>
I doubt that CRA was "happy". I guess they merely rolled their eyes and worked with it.
The letter is only sent if their is an error in the withholding. If there is no error, there is nothing to send to CRA: they will get their copy of the NR4 form the company and that will be that.
Rh's experience with RevQue is (was) not unusual for the time. During the brain drain, all the provinces, but especially Quebec were getting riled-up about Non-resident taxation.
The 2 major contentious issues were rental incomes and RRSP withdrawals.
Even if you are a non-resident, you still pay provincial tax on income generated specifically in the province, like wages, business income, real estate gains. But rental income tax goes ALL to the feds.
Likewise with RRSP withdrawals. here the provinces have duly rewarded contributors with tax deductions, but when the person leaves, the feds get all of the NR tax.
The other forms of NR tax, while these too go all to the feds (interest, dividends, etc) can't so easily point to a provincial relationship.
In 2000, when I left, my advisor warned me that QC was seriously considering pushing for NR tax reform to get their hands on this money, particularly RRSP. One way QC was trying to get around this was by refusing to simply accept 'federal' non-residency determinations as meaning they had left QC.
I suspect the slowing of the drain (both of those leaving QC for elsewhere in canada, and of those leaving Canada), as well as the arrival of TONI, in which the provinces asserted a little more QC-style control over their taxation policies, took this issue off the front burners.
<i>nelsona non grata</i>
The letter is only sent if their is an error in the withholding. If there is no error, there is nothing to send to CRA: they will get their copy of the NR4 form the company and that will be that.
Rh's experience with RevQue is (was) not unusual for the time. During the brain drain, all the provinces, but especially Quebec were getting riled-up about Non-resident taxation.
The 2 major contentious issues were rental incomes and RRSP withdrawals.
Even if you are a non-resident, you still pay provincial tax on income generated specifically in the province, like wages, business income, real estate gains. But rental income tax goes ALL to the feds.
Likewise with RRSP withdrawals. here the provinces have duly rewarded contributors with tax deductions, but when the person leaves, the feds get all of the NR tax.
The other forms of NR tax, while these too go all to the feds (interest, dividends, etc) can't so easily point to a provincial relationship.
In 2000, when I left, my advisor warned me that QC was seriously considering pushing for NR tax reform to get their hands on this money, particularly RRSP. One way QC was trying to get around this was by refusing to simply accept 'federal' non-residency determinations as meaning they had left QC.
I suspect the slowing of the drain (both of those leaving QC for elsewhere in canada, and of those leaving Canada), as well as the arrival of TONI, in which the provinces asserted a little more QC-style control over their taxation policies, took this issue off the front burners.
<i>nelsona non grata</i>
Theoretically speaking, if I didn't worry about notifying RC of the mistake made by my banker by with holding 20% instead of 25%, would they end up sending me a letter or imposing fines?
I'm thinking it would be easiest & more affordable to worry about reimbursing the extra 5% after I receive my refund -- just as long as they don't get upset and make it more expensive.
I'm thinking it would be easiest & more affordable to worry about reimbursing the extra 5% after I receive my refund -- just as long as they don't get upset and make it more expensive.
Are you serious?!
You owed the money the day you collapsed the RRSP. The clock on interests and penalties *could*, at CRA's discretion, start from that day.
You asked what you should do. I'm telling you what CRA expects you to do.
You want to be proactive on this, not waiting around for CRA to get confused and start scratching around.
It's five hunderd bucks! How little are you being paid at your new job!?
<i>nelsona non grata</i>
You owed the money the day you collapsed the RRSP. The clock on interests and penalties *could*, at CRA's discretion, start from that day.
You asked what you should do. I'm telling you what CRA expects you to do.
You want to be proactive on this, not waiting around for CRA to get confused and start scratching around.
It's five hunderd bucks! How little are you being paid at your new job!?
<i>nelsona non grata</i>
Not a whole lot, actually. I took a pay cut to come down here because the job was too good to pass up, and the opportunity to live in the US was worth it.
Plus, how can they justify charging me extra when the bank screwed up? I specifically told them I was living in the US -- they even have my US mailing address as the primary address on my accounts. If I get charged even a dime extra, the bank should be liable (of course, <i>should </i>be is always the key word).
Plus, how can they justify charging me extra when the bank screwed up? I specifically told them I was living in the US -- they even have my US mailing address as the primary address on my accounts. If I get charged even a dime extra, the bank should be liable (of course, <i>should </i>be is always the key word).
I just called my banker to tear her a new butt-hole... of course she feigned ignorance and said the computer figures it all out automatically and she can't do anything about it. I love how "the computer" is always the scape goat. Far be it for anyone to every think for themselves.
Groan, guess I should be smart and call RC. Ugh.
Groan, guess I should be smart and call RC. Ugh.
Why baother calling them.
Just send them a letter and a cheque and be done with it.
And I wouldn't be too upset with your (former) banker, since they let you keep $500 for 4 months longer than you should have.
Since you say that you arranged things so that you get a $4000 refund from 2 months of living in Canada, obviously precise withholding is not a big concern to you.
Oh, and by the way, don't expect a decision/refund for your departure return much before August. All departure returns and non-resident retrns are processed AFTER everyone else's.
<i>nelsona non grata</i>
Just send them a letter and a cheque and be done with it.
And I wouldn't be too upset with your (former) banker, since they let you keep $500 for 4 months longer than you should have.
Since you say that you arranged things so that you get a $4000 refund from 2 months of living in Canada, obviously precise withholding is not a big concern to you.
Oh, and by the way, don't expect a decision/refund for your departure return much before August. All departure returns and non-resident retrns are processed AFTER everyone else's.
<i>nelsona non grata</i>