Section 1446 Partnership income ECI witholding in RRSP

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Section 1446 Partnership income ECI witholding in RRSP

Post by Bubba Gums »

Is 1446 ECI withholding at max rate appropriate in the RRSP of a US citizen? It would seem to me that since the grantor/beneficiary is a US person, then the supplied W-9 would obviate the 39.6% withholding.

Is there a way to claim this withholding as a payment or to recover the withholding?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

We have had issues in the past with RRSPs being improperly withheld (usually for foreign tax withholding on dividends). Its not the absence or presence of a W-9 that removes the tax obligation (after all, a Cdn investment account would have in place the same W-9, but would have US taxes withheld on US dividends).

rather it is Treaty Article XVIII.7 which exempts RRSPs from any US tax withholding arising from transactions within the account. This certainly applies to US dividends paid to RRSPs. I suspect that it also applies to partnership income as well.
Trouble is that the RRSP trustees need to be educated on this).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Post by Bubba Gums »

I am not so sure that it is exempt from US tax because of the treaty. See for example:

https://www.theglobeandmail.com/globe-i ... le1372575/

I will receive Form 8805 "Foreign Partner's Information Statement of Section 1446 Withholding Tax". This will indicate the income and tax withheld. I would add the income to my 1040 and the withheld tax as a payment on Line 73 referencing the 8805. I would increment my investment in contract in the RRSP by the income I declared. Any thoughts about this approach?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

There you go.

So, your only remedy, as with any US tax withheld from US citizens, is to include it in the tax paid on your 1040, which is an 'advantage' that Cdns don't have since they don't file a 1040. You still don't need to report the partnership income, since it is within the RRSP, so that tax should be refunded.

If a US tax form is issued, I guess a Cdn could technically file a 1040NR, reporting no income, and using the K-1/1099 withholding as tax paid. .


Unfortunately, it does reduce the value of the RRSP
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

As to the treatment of your RRSP, as a US citizen, I don't think you get to increase the value of the investment in the contract by this. It isn't a contribution. All it results in is less income to withdraw at the end.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Post by Bubba Gums »

If I do not report the income (because it is in the RRSP and tax exempt until the rrsp is distributed) how can I transfer the tax recovery back into my RRSP account without it being considered a contribution?
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Re: Section 1446 Partnership income ECI witholding in RRSP

Post by Bubba Gums »

As an update. The form 8805 was never sent. Nonetheless I included it as a credit on line 74 and included an explanatory statement. IRS sent CP11, but international allowed the credit after I discussed it with them by phone.
Post Reply