Question about deferring RRSP income for permanent resident

Lorraine65 · Post by **Lorraine65** » Sun Feb 05, 2006 3:42 pm

My Employer-based permanent residency application has been submitted and I anticipate a decision (hopefully of acceptance) by the end of 2006. I have a LIRA in Canada which I unfortunately cannot cash in.

If/when I become a U.S. permanent resident, can I keep deferring the income on form 8891, or should I just start reporting it from now on (effective 2005)? It's not a lot of money and I'd love to be able to cash it in, but cannot since it resides in Ontario, Canada.

On a similar note, since the income can not be deferred in California, where would the income be reported? Would it be on Form CA (540)? If the income has never been specifically reported on Form 540 (copies of the federal return, including Form 8891) were submitted with all California returns), would I have to send in amended returns or just report the full gain to date on my 2005 return?

Thanks,

Lorraine

nelsona · Post by **nelsona** » Mon Feb 06, 2006 7:17 am

You have to report the "yearly" income on your CA 540 (you will have to figure out where). The method for doing this is by "ignoring" the fact that the accounts are RRSP/LIRAs, and just total up the Interst, dividends, and capiatl gains that your accounts GENERATE during the year, and report these on the specific lines/schedules, just as if they had been regular investment accounts.

Yes, if you did not do this in 2005, then you will have to ammend. The fact that you sent 8891 to them (which they do not recognize) wil probably mean a letter will be on its way to you asking for tax.

This is done yearly, and thus what happened in the past, in terms of gains before arriving in US, is immaterial.

You could also choose to do this for your Fed returns as well, as outlined on 8891.

shsamardar · Post by **shsamardar** » Wed Apr 11, 2007 12:52 am

if all dividents in RRSP are invested within the account and there is no distirbution, Do we have ot still reporty this is Calfornia?

nelsona · Post by **nelsona** » Wed Apr 11, 2007 9:14 am

Of course. Reinvested dividends (in a non-sheltered account) are always considered income to reported yearly. California requires tax to be paid on this

shsamardar · Post by **shsamardar** » Wed Apr 11, 2007 11:27 am

Ok. How about federal? Do we have to include the reinvested distirbutions in 1040 or that secific form of IRS for RRSP accounts take care of that. I forgot form number.

nelsona · Post by **nelsona** » Wed Apr 11, 2007 11:56 am

Form 8891, if you elect to defer, sheilds this income. California is the only state that does not go along with this.

shsamardar · Post by **shsamardar** » Thu Apr 12, 2007 1:50 am

ok. for CA, we will adjust the incoem for all dividents received from RRSP.
But if there is no distributions of this dividents and all ofthem reinvested in the RRSP again, Next year, I am paying to CA again for any dividents in that time I am reciving from this reinvestment. Isn't it double taxation?
if at the end, I am distribituing whole RRSP account to myself, how to exempt these amount from double taxation?

Am I in right path seeing this process as double/triple/... taxation by CA?

nelsona · Post by **nelsona** » Thu Apr 12, 2007 9:55 am

When you withdraw funds from RRSP, you will be taxed on the growth by IRS. But for california, since you have already been taxed year by year on the growth, you will only be subjec tto tax o nthe growth from that year. california procedures allow for this.