RRSP lump sum withdrawal

[uscanadataxes]

Hello,
New to the forum.
We moved from Canada to US in 2014. RRSP account had about 100,000 CAD in it at the time of the move. I never touched the account (no new contributions) until
2017 when I withdrew 10K, on which Canada took 25% tax - 2500 CAD.
I'm trying to figure out how to report it in US turbotax. Would 10K be a foreign income?
When claiming foreign tax credit - would the category be general or passive?
Thank you.

[uscanadataxes]

Read more about the subject.
From what I understand, from irs point an RRSP account is like any other investment account, once person starts withdrawing the money - you just pay taxes on the "growth" part. Initially I thought that irs will treat RRSP account like cra - need to pay tax on the whole amount withdrawn.
Lets say when I moved in 2014 the account was worth 90,000 with a cost base of 70,000. In 2017 it was 100,000. If I withdrew 10,000 in 2017 and I'll need to pay taxes on 3,000 to irs. Please correct me if I'm wrong.

Another thing is a cost base - unfortunately I did not consult anyone before our move and did not increase the cost base by selling and buying again. So, I cannot really use 90,000 (the value in 2014) as a cost base?

One more question - reading about Form 8938 - our expensive accountant who specializes on US-Canada taxes and who we once used, never mentioned anything about the form. Now I'm reading about it and it worries me a lot that we never submitted one. We did FBARs only. How bad is it? Should we now send the form for 2014-2017 years?
Thanks!

[nelsona]

You are correct that you must use the cost basis (not the FMV) on the day you became US taxpayer in determining the non-taxable portion of your withdrawal. Your $10K withdrawal is 70% non-taxable (7oK/100K). Next time you withdraw, you will have $63K non-taxable reserve to make your calculation.
You do NOT however report internal income year-by-year. You are only required to report income in years that you make a withdrawal from your RRSP.

[uscanadataxes]

Thank you very much, nelsona, for your reply!
I'd like to clarify couple things:

Calculating cost basis - this RRSP was accumulated during 2003-2010 with regular withdrawals from my salary and a company match. Should I tenaciously go through all the transactions (if I can even get hold of them) and convert each amount to US equivalent using an exchange rate at the time of the deposit (that will be a lot of conversions!)? Can I include the company match in the cost basis?

What should I do about form 8938? - we did have more than 100K in Canadian account (my RRSP and my husband's LIRA only).

[uscanadataxes]

On a separate note - can I edit my previous posts?

[nelsona]

The cost basis (book value) in C$ converted on the day you became US tax resident is sufficient. You should have this in your statement for each investment that you have.

[nelsona]

For 8938, you can certainly file.

[nelsona]

You would however need to show reasonable cause for not having filed previously. Remember the $100K threshold is in USD.

[uscanadataxes]

Thanks again!

That's the problem with the form - I just had no clue about it, accountants never suggested, only FBAR, which we of course did. Now I know only because I started researching RRSP question. It is actually quite strange I never came across this form before, as I did a lot of research about our tax situation since our move (I had to, because I saw that accountants that we've used, both in US and in Canada were making mistakes). Would you suggest sending it for all the previous years, or just current one? What could be the consequences for not sending it in time?

Related question - in turbotax, in the income section, when I'm trying to enter RRSP income it asks the following question - "Did *person* make an election in 2015 or before under US-Canada income tax treaty to defer the income accrued in this account with *my RRSP company name*".
Did I need to make an election? Where would I make such an election? Should I go back to the tax for the year we moved and make such an election?

Oh, my head is about to explode, was so much easier in Canada!

[nelsona]

You can assume yes on the election.

[nelsona]

2013 was the last year when one had to make an election. You are assumed to do so since then.

[uscanadataxes]

nelsona wrote:
> 2013 was the last year when one had to make an election. You are assumed to
> do so since then.
We moved from Canada to US in 2014. Could you please clarify why would I say yes if I never made such an election before?

And I'm extremely worried about the required form that we have not submitted... Could you please tell me what are the consequences for not submitting one could be?

I was also thinking (after reading this forum) - can I treat RRSP as a regular investment for irs point of view? In this case I could probably say that the cost basis is the value in 2014 (when we moved), collapse RRSP now (although it grew in CAD value, it is at best has the same value in USD now as it was in 2014, hence no capital gains at all). Could you comment on this scenario.

Very much appreciate your responses! Thank you so much!

[nelsona]

As I said, you are assumed to have made the election.
No, you cannot elect to treat this as a normal investment account.
You cannot say that the cost basis is when you moved (IRS doesn't work that way except for investments that were deemed disposed when you left Canada -- your RRSP was not subject to deemed disposition.
If the current FMV is less than your original cost basis, then for that withdrawal there should be no taxable portion, but changes year by year.

These Q's have been addressed before, your situation is not that unusual, No need to reinvent the wheel. make your withdrawals and pay the Cdn and US tax. Use the 25% Cdn tax as a deduction if it is large, and a credit if you can't itemize.

[nelsona]

You still need to submit the FATCA form, there is no getting around this. As long as you reported the interest in your bank accounts, and did FBAR, I see no reason why you would be penalized for FATCA. Your RRSP is not the problem. Form 8938 is whet you need to focus on.

[uscanadataxes]

When you mention FATCA form you mean form 8938?