NR7 timing

[SergeP]

I am a non-resident of Canada. In 2024 I received a RIF payment that exceeds 10% of my RIF balance. The bank withheld 25% tax. I know that I can recover some of this tax by filing a NR7-R form. Should I wait with this form until the next year or I can file it this year? On this NR7 form there is a part that requires certification from the payer (the bank). How is it done - by filling the form and sending it to the bank for certification?

[nelsona]

Be careful. If you received this payment in ONE withdrawal, you were correctly withheld. Hope you didn't goof on your withdrawal request.

To get the 15%, you must FIRST make withdrawals that total less than 10% of your Beginning of year value. Then, if you need more, all withdrawals that put you over the 10% will be withheld at 25%.

For a refund, you need to wait until year-end before filing NR-7-R , as you will need your tax slip (that will be the certification). You will also need to show where the trustee made their mistake, by documenting the withholding for each withdrawal.

[SergeP]

Thank you for your reply. Yes, I made a mistake requesting more than 10% from RIF. I do not plan to request more withdrawals this year. So, will need to wait until 2025 to get a refund from CRA.

[nelsona]

How many withdrawals di you make?

[SergeP]

Just one withdrawal.

[nelsona]

So, as I said, you were withheld correctly.
You did not correctly make your withdrawal periodic, thus you were not entitled to 15% rate on the first 10%. Only withdrawals made up to the 10% mark are withheld at 15%. Any withdrawal that puts you over the 10% mark is FULLY TAXED at 25%.

Better math next year, sorry.

[SergeP]

Is this 25% tax final or I can still reduce it to 15% by filing NR-7-R form next year? Also, if I cannot reduce this 25% tax, can I at least claim this full amount as my FTC when filing to US or only 15% is allowed?

[nelsona]

That is the final tax, since you didn't follow the rules for periodic withdrawal. Even if you file an NR-7-R, it will be of no use, because they will ask for your withdrawals and see that your withdrawal was not periodic,
The only way you *might* reduce your tax on this year's withdrawal is by filing a 217 next spring, but on it, in order to determine the tax rate, you will be listing all world income. As you are realizing for 2023, 217 only works when you have very little other income.

[SergeP]

Can I use this 25% paid tax for my FTC when filing 1040?

[nelsona]

Of course. It is the correct withholding, so IRS will accept it.