First, my situation. I have been in the US since the fall of 1996. When I moved down, I rolled my CDN employer RRSP account into a private RRSP account. It was funded at that time with about $14.5K CDN. I have never filed any paperwork in the US for this account. Come 2005 I cash in my RRSP account which was worth ~$29K CDN (and paid the 25% witholding tax). I am currently preparing my 2005 US tax return (using TurborTax). I never knew that I had to be filing anything in the US to do with my RRSP account. I started to research what (if anything) I needed to do on my 2005 tax return. Obviously, based on the information here, I do have to do something. But I need some help on exactly what.
What it appears I need to do is as follows. But I have a few questions on each. I would appreciate some input...
1. Report the $29K CDN distribution as income on my tax return. It appears that only the accumulation since 1996 is the US taxable portion (~$14.5K).
Do I report this under the IRA/Pension section as if I received From 1099-R, and just fill in form 4852 (Substitute for 1099-R), or do I do it under the Foreign Earned Income section (under Other Income)?
DO I use the exchange rate as of my withdrawl date to calculate the USD equivalent?
2. Claim the 25% CDN withholding tax as Foreign Tax paid.
Where do I do this? Turbotax seems to give me the option of claiming this as a deduction or as a tax credit - which is correct?
Again, do I use the exchange rate as of withdrawl date to convert?
3. I probably need to file Form 8991 to be in compliance. How do I do this? How far do I need to go back, is filing it just for 2004 sufficient? And I assume I'll need to file it for 2005 as well. Since Turbotax doesn't include this form, can I file electronically and then mail 8991 in later?
Sorry for so many questions, but I can't seem to find all of the answers. I'm going to continue to read as much as I can, but would appreciate any help that you all may be able to offer. Thanks in advance.
Cashed in RRSP - Help on US Reporting
Moderator: Mark T Serbinski CA CPA
First off , you should have been deferring this income yearly (with an election), ever since you arrived. At a bare minimum, you should ammend your 2004 return to add a Form 8891 to indicate that you have elected to defer until withdrawal (yeah, I know you've now collaped it, but you are miaking up for past sins). Ideally you would go back at least to 2002 and file a statement comliant with Rev Proc 2002-23, but you can do this later if IRS raises a stink.
Second, your RRSP income is not on a 1099 because it doesn't have to be. There is no need, nor should you file any substitute form. The NR slip you get from CRA will suffice for your records, not to be sent in. You may need to fake a 1099 in turbotax just to get the data in (be sure that the software doesn't rry to tax you the 10% early withdrawl penalty -- RRSPs are not subject to this).
For 2005, you will fill in an 8891 and report the gross amount on line 16a of 1040, and the taxable ammount (the gains you've made since arrival) on 16b.
Your gain must be determined using the exchange rates (a) when moved here, and (b) when you sold: ie. the 15K will be calculated in US dollars based on the 1996 exchange rate, and the 29K selling value will be based on 2005 rate.
As to how to use the 25% tax. You have 2 choices:
1. report it as acredit on form 1116 (let turboatx do the calcualations, which will limit what you can use, and be careful of the form it is not user friendly) , or
2. put the entire ammount on your schedule A as a foreign tax deduction.
The credit is a better use of each dollar, but is severley limited (you will probably only get to use about $2000 of your $6000 tax) although you can carry-forward any unused tax (which is useless if you have no other Cdn income in the near future).The deduction on the other hand is just that: a dedcution from your income, so will only get you 25-30 cents on the dollar, and requires that you itemize, and can't be carried forward.
Do it both ways and see which yields a lower overall tax.
Second, your RRSP income is not on a 1099 because it doesn't have to be. There is no need, nor should you file any substitute form. The NR slip you get from CRA will suffice for your records, not to be sent in. You may need to fake a 1099 in turbotax just to get the data in (be sure that the software doesn't rry to tax you the 10% early withdrawl penalty -- RRSPs are not subject to this).
For 2005, you will fill in an 8891 and report the gross amount on line 16a of 1040, and the taxable ammount (the gains you've made since arrival) on 16b.
Your gain must be determined using the exchange rates (a) when moved here, and (b) when you sold: ie. the 15K will be calculated in US dollars based on the 1996 exchange rate, and the 29K selling value will be based on 2005 rate.
As to how to use the 25% tax. You have 2 choices:
1. report it as acredit on form 1116 (let turboatx do the calcualations, which will limit what you can use, and be careful of the form it is not user friendly) , or
2. put the entire ammount on your schedule A as a foreign tax deduction.
The credit is a better use of each dollar, but is severley limited (you will probably only get to use about $2000 of your $6000 tax) although you can carry-forward any unused tax (which is useless if you have no other Cdn income in the near future).The deduction on the other hand is just that: a dedcution from your income, so will only get you 25-30 cents on the dollar, and requires that you itemize, and can't be carried forward.
Do it both ways and see which yields a lower overall tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks for your response. I've been reading alot of the forums and your input is wonderful.
Yes I realize now that I should have been filing something to defer all along (slap myself). As you say, I'm trying to make it right now.
On the 8891 form for last year, what should I do with 6a/b/c? What are the implications if I say no to 6a?
Based on reading here, I was leaning towards going back and filing statements compliant with RP 02-23 back to '96 (before your response). I am rethinking this now. Why did you choose 2002? I thought RP 02-23 could be used retroactively back to 1996. If I do this, do I have to do a 1040X for each year, or do I just send in a statement? (BTW, I can't find 02-23 on the IRS web page, and therefore don't know what the statement should say).
On the income portion, I know it's not on a 1099. I assume by your response though that I should be reporting it under the IRA section (as if I received a 1099-R) and not the Foreign Income section. (BTW, is there a simple way I can check if they are trying to tack on the additional 10%?)
And to be clear, I can file electronically now (including the RRSP income and deduction/credit) and then do a 1040X later to add the 8991, correct?
Again, thanks for your help on this - it is VERY much appreciated.
Yes I realize now that I should have been filing something to defer all along (slap myself). As you say, I'm trying to make it right now.
On the 8891 form for last year, what should I do with 6a/b/c? What are the implications if I say no to 6a?
Based on reading here, I was leaning towards going back and filing statements compliant with RP 02-23 back to '96 (before your response). I am rethinking this now. Why did you choose 2002? I thought RP 02-23 could be used retroactively back to 1996. If I do this, do I have to do a 1040X for each year, or do I just send in a statement? (BTW, I can't find 02-23 on the IRS web page, and therefore don't know what the statement should say).
On the income portion, I know it's not on a 1099. I assume by your response though that I should be reporting it under the IRA section (as if I received a 1099-R) and not the Foreign Income section. (BTW, is there a simple way I can check if they are trying to tack on the additional 10%?)
And to be clear, I can file electronically now (including the RRSP income and deduction/credit) and then do a 1040X later to add the 8991, correct?
Again, thanks for your help on this - it is VERY much appreciated.
Yeah, there is line 60 on 1040. It should be zero. If it isn't,you need to go into the Ttax form that you entered your RRSP and find a code that excludes your income from the penalty.is there a simple way I can check if they are trying to tack on the additional 10%?)
Yes.I can file electronically now (including the RRSP income and deduction/credit) and then do a 1040X later to add the 8991, correct?
I chose 2002, since tha twas the year RP 2002-23 came out. If you wish to go back, or to use RP 89-45 for '96-2001 go ahead.
http://www.unclefed.com/Tax-Bulls/2002/rp02-23.pdf
For 2003
http://www.unclefed.com/Tax-Bulls/2003/not03-75.pdf
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Do I just send in the statement to my local tax office, or do I need to also attach 1040X for each year? This may be more work than it's worth - hence your advice to just file 8891.I chose 2002, since tha twas the year RP 2002-23 came out. If you wish to go back, or to use RP 89-45 for '96-2001 go ahead.
(And thanks for the links.)
If I choose to just file an 8891 for last year (and this year) what do I do with section 6? I'm assuming for last year I would selec t No for 6a and then check 6c. What are the implications for this? (i.e. back taxes?) (For 2005 I would then select Yes in 6a and 2004 for 6b).
Bottom line is that this was an honest mistake and I want to make it right. The alternative is to ignore all of this (i.e. income and all), but I'm pretty sure that's a bad choice as I assume there is some reporting between Canada and the US in regards to this.
Nothing would please IRS more for you to ignore all this, and subject your self to fines and penalties for back taxes. plus a $500,000 fine for failure to report your foresgn trust for 2003, 2004, and 2005.The alternative is to ignore all of this.
No, file an 8891 for last year (sent in now) , and this year (sent a couple of weeks after e-file) , and move on.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
I don't know what I would do without your help and the information on this site. It has helped me tremendously.
I have been reading the lengthy 12-page thread on 8891 and that's why I'm concerned about the implications of saying "No" to 6a as it relates to fines and back taxes. That's why I was thinking about filing all of the previous years. I'll keep on reading.
The more I read up on this and begin to understand, the more I am leaning this way. I can understand though why some people may decide to ignore this - it's alot of work.No, file an 8891 for last year (sent in now) , and this year (sent a couple of weeks after e-file) , and move on.
I have been reading the lengthy 12-page thread on 8891 and that's why I'm concerned about the implications of saying "No" to 6a as it relates to fines and back taxes. That's why I was thinking about filing all of the previous years. I'll keep on reading.
I finally got through the long thread about 8891's. Some godo nuggets in there.
The advice you offered in there (roughly a year ago) to a few folks was to file 02-23 statements (or 8891) for all missed tax years (up to 6 years). Since your advice to me is only to file 8891 for 04 & 05), have you come across some new information in the past year which has changed your opinion?
The advice you offered in there (roughly a year ago) to a few folks was to file 02-23 statements (or 8891) for all missed tax years (up to 6 years). Since your advice to me is only to file 8891 for 04 & 05), have you come across some new information in the past year which has changed your opinion?
Not really. Just that now that you have cashed in, there will be no future tax liability (you declaring all your income and are paying all your owed tax this year).
Also, it is clear that 8891 will be around for the next while, and is identical to last year, marking the first time in about 6 years that no change has been made in RRSP reporting rules, thus I'm more comfortable in believing that IRS will accept regualar filing of 8891 as sufficient (thus my advice to file 8891 for 2004 and 2005) for both compliance on the foreign asset reporting and the income deferral.
If you had an $800,000 RSP and were not going to be takling income for 20 years, I would likely tell you to back-file everyting asa precaution.
Then again, I would be telling you to pay a pro to do it.
Also, it is clear that 8891 will be around for the next while, and is identical to last year, marking the first time in about 6 years that no change has been made in RRSP reporting rules, thus I'm more comfortable in believing that IRS will accept regualar filing of 8891 as sufficient (thus my advice to file 8891 for 2004 and 2005) for both compliance on the foreign asset reporting and the income deferral.
If you had an $800,000 RSP and were not going to be takling income for 20 years, I would likely tell you to back-file everyting asa precaution.
Then again, I would be telling you to pay a pro to do it.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
After digging a bit, I found something interesting. My company paid for professional preparation for 1996 due to the dual-residency. I found that my tax return filed for 1996 did contain an election to defer pursuant to RP 89-45. All subsequent years (that I prepared on my own) did not contain any similar election.
Does this 1996 election change the situation at all? I doubt it does, but wanted to ask to be clear.
Does this 1996 election change the situation at all? I doubt it does, but wanted to ask to be clear.
In addition to the above revelation of a previously filed 89-45 I did run TurboTax last night using both the deduction and the credit. The deduction was pretty straightfoward as I already itemize anyway - the addition income came out to cost me another ~$1000. But the credit didn't go so well...
You weren't kidding. I must be doing something wrong, because the Turbotax calculations were resulting in a 0 credit. I'm going to download the form to paper and work it by hand to see if I can figure it out. It appears that there are some special rules surrounding Lump sum Distributions. Anyone have any advice? Is there a cheat-sheet out there for this particular situation?report it as acredit on form 1116 (let turboatx do the calcualations, which will limit what you can use, and be careful of the form it is not user friendly)
It is not a lump sum distribution, it is general limitation income. You do have to go thru the worksheets in Ttax, as there are settings which determine if the money is truly foreign and then what deductions go with it. and don't forget to actaully enter your Cdn tax on the form.
Bit of a pain, But don't count on getting a lot of your Cdn tax credited.
as to your previous 89-45 submission, too bad you did not take a lok at your tax return taht year. 89-45 was a YEARLY election, as aopposed to 2002-23 which is irrevocable. All it takes care of is 1996.
It does provide however what your basis was for determining your taxable income this year.
Bit of a pain, But don't count on getting a lot of your Cdn tax credited.
as to your previous 89-45 submission, too bad you did not take a lok at your tax return taht year. 89-45 was a YEARLY election, as aopposed to 2002-23 which is irrevocable. All it takes care of is 1996.
It does provide however what your basis was for determining your taxable income this year.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Excellent - I think that makes it a little simpler. How would I have known that it was General Limiation Income? I assumed it fell under a Lump-Sum. The definitions in the instructions for Form 1116 aren't that clear and I did take a lump-sum withdrawl (hence my reasoning).It is not a lump sum distribution, it is general limitation income.
Yeah, I know. Believe me, I'm really kicking myself now.as to your previous 89-45 submission, too bad you did not take a lok at your tax return taht year. 89-45 was a YEARLY election, as aopposed to 2002-23 which is irrevocable. All it takes care of is 1996.
What actually goes on line 1 of Form 1116? Is it the entire withdrawl amount CDN$29K (converted of course) or is it only the taxable portion of CDN $15K (gains since residency)?
The line reads "Gross income..." without distinction. The instructions for Form 1116 for Line 1 read "Include income in the category checked above Part I that is taxable by the United States and is from sources within the country on line I". To me that means I would only input the CDN$15K that is taxable (i.e. Form 1040 16b, not 16a).
The line reads "Gross income..." without distinction. The instructions for Form 1116 for Line 1 read "Include income in the category checked above Part I that is taxable by the United States and is from sources within the country on line I". To me that means I would only input the CDN$15K that is taxable (i.e. Form 1040 16b, not 16a).