Cdn Couple 1st year choice to file in Cal. as Residents

nelsona · Post by **nelsona** » Wed Apr 01, 2009 11:07 am

Sigh. Undistributed earnings DO NOT go on 8891 or 1040. that's the whole point of 8891. Read the instructions more carefully. If you took no money out of the RRSP, you report nothing on 8891 except year end value.

California does not accept the treaty deferral, thus you need to report every penny of internal interest, dividend and cap gain/loss on the RRSP for the year, just as if the sheltering did not exist. Doesn't matter what you do with 8891, Cali ignores this.

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 11:45 am

CRAAAAAAAP Thank you! Did NOT know about Cali requiring us to report it. thank you thank you.

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 12:00 pm

Doesn't that mean though we're going to be double taxed on this RRSP? Once now in California and then later again when we withdraw in Canada? That really sucks!

nelsona · Post by **nelsona** » Wed Apr 01, 2009 12:52 pm

It is if you leave cali. But if you were to stay in cali, you would not be taxed at all on the distribution, since your investment is iessentially what you broght and what you were taxed, leaving only the current year income and any gains triggered by the sale.

But, your being in cali makes it taxable now.

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 1:19 pm

yes....payment for sunshine I suppose. So, I will report the income we made within the RRSP while California Residents.

I know you don't like to discuss state questions so no worries if this question is too annoying. But the FTB site for California says that The Franchise Tax Board will treat a taxpayer's original contributions to the RRSP, made while a Canadian resident, as a capital investment in the RRSP. However, for 2008, we added 10,000 while were were Cali residents. I'm guessing they don't mention specifically contributions while non a Canadian resident about the contributions so we would still only report the actual internal earnings right?

Nelsona, I know you don't like to comment on state taxes so thanks very much. Hope you do something fun on your time off!

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 1:24 pm

wow sorry I meant:
Since they don't mention specifically contributions while not a Canadian resident we could still only report the actual internal earnings right?

nelsona · Post by **nelsona** » Wed Apr 01, 2009 1:41 pm

Only the yearly income while in Cali is taxable... yearly.

Technically, that also doesn't include income from the first part of 2008, when you were not resident of california either.

nelsona · Post by **nelsona** » Wed Apr 01, 2009 1:45 pm

Btw, most Cdns in your situation would be looking to collapse their RRSPs now, since thety are non-resident and unlikley to ever see a lower than 25% taxrateon their withdrawl.

If one of you is not working, it makes even more sense for that person to be removing RRSPs.

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 1:50 pm

Well, we intend to move back in July and stay in Canada after that. So not sure if we'd want to do that. With me not working, California was a good adventure for a year, but a costly one. After considering everything, I think we're both of the opinion that Canada is a better place for us.

Nelsona, I don't know how to thank you enough. I don't know what motivates you but you really are awesome! I've never seen someone on a forum this helpful, knowledgeable and willing to share. It's unbelievable and I am eternally grateful.

nelsona · Post by **nelsona** » Wed Apr 01, 2009 2:39 pm

Like I said, even Cdn residentas should think seriously about removing RRSP funds when not working. As a non-resident it makes even more sense, since your RRSP withdrawal doesn't affect your spouse (like it might if resident).

Think about it before moving back, you have time.

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 2:46 pm

Thanks! I assume there was a recent lowering of the tax on RRSP withdrawals? I will look into this. Only my husband has funds in his RRSPs so I've never given this much thought. Will try to understand this once taxes are done.

nelsona · Post by **nelsona** » Wed Apr 01, 2009 2:51 pm

No there has not been a lowering of tax on RRSP withdrawals. Its just that since you aren't working, you can at least get $10K out without tax, instead of the 25%. This has always been the case, its known as the 217 election return.

jgoveas · Post by **jgoveas** » Wed Apr 01, 2009 2:53 pm

ah! That's interesting. Since this RRSP plan is under my husband's name, and since it's ME that isn't working will this still work?

nelsona · Post by **nelsona** » Wed Apr 01, 2009 3:00 pm

No. You don't have any RRSPs.

That was a missed planning opportunity. I'm a BIG proponent of spousal RRSP as a method of shifting income.

Think about this when you move back to canada.

I built up about $70K in a spousal for my wife, not knowing that we would move to US, have a kid etc. She hasn't worked, and we hae withdrawn all that income tax-free in Canada in the space of about 5 years, with minimal tax in US.

Now we have that cash, if we go back, We can put it in an RRSP agin and get a big deduction all over again.

nelsona · Post by **nelsona** » Wed Apr 01, 2009 3:01 pm

... and it will be in her spousal RRSP