Canadian RRSP withdrawal and Foreign Tax Credit in US

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Pierrem
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Joined: Sat Feb 16, 2019 12:00 pm

Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by Pierrem » Sat Feb 16, 2019 1:07 pm

What about the treaty with Canada art. 24 - elimination of double taxation. I have a remaining foreign tax credit caryover the next years but not foreign income for the next years. How to use it ?

I compared both Deductible and take a Foreign tax Credit, and with the second solution is better for taxes. I'm using Turbotax and Taxact, both softwares gave me the same tax amount to pay.

I have a foreign tax credit from a Canadian RRSP withdrawal - paid 25% to Canada - as a US resident. Due to a proportion made betwen US wages and foreign income, IRS only considers the same proportion to be used on taxes. By instance, if the propotion between US wages and foreign wages is 1/3, only the part representing 1/3 from the due to US taxes ( calculated on the total income from US and from RRSP ) will be used from the Foreign tax credit.
So I cannot use it completely and according the IRS Pub. 514 I am allowed to carryover the remaining FTC amount. But, for the next years I'll not have any foreign income so no proportion between US wages and a foreign income. How to use the remaining FTC ? what about the treaty art 24 Elimination of double taxation once US add my foreign income to the US one and takes taxes on the total ? looking now to how much I paid to Canada ( 25% ) and to US , the total is over 35% of the amount withdrawn ...

Thanks.

nelsona
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Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by nelsona » Fri Feb 22, 2019 1:36 pm

the only way to use the foreign tax credit left over, is to generate general limitation income (ie. not investments) that are not taxable in Canada. One way is to generate employment (less than $10K Cdn) or self-employment income in Canada (no limit), which is by treaty not taxed in Canada, but is still considered foreign income.

But, in general, excess Cdn tax is never recovered. In the past you could use the tax as an itemized deduction instead of a credit, but now with the high standard deduction, it is not so useful.

FTC is not truly designed to give you dollar for dollar credit, since it has many limits. Same is true in most countries.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Pierrem
Posts: 4
Joined: Sat Feb 16, 2019 12:00 pm

Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by Pierrem » Mon Feb 25, 2019 11:03 pm

Thank you Nelson.
As I'm US resident all the year, working and leaving in US, how to generate income in Canada ? supposing I would have other RRSP and retire only 10000 USD - I would pay 2500 tax to Canada being US resident- do I have to declare the 10K in my US taxes ? is confusing to me as 10K you can make offshore without to declare them according the treaty, or I'm wrong ? so how to use this 10K to benefit for the FTC ? and my FTC is already bigger now by 2500. If IRS uses again the income proportion US vs Foreign, and extend the proportion to the taxes, it will be less and less to recover from my FTC. Any other idea how to deal with this challenge ?

Many thanks, sincerely

Pierrem

nelsona
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Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by nelsona » Tue Feb 26, 2019 8:40 am

Only WAGES have that $10K exemption, and the exemption would be to not have to declare it in Canada, but still declare in US.
As I sad, it is usual for most Cdbs with RRSPs that they never recover the foreign tax credited carried over.

You asked how one could, I gave you how, as unlikely as it may be. I work for a company that sends me to Canada from time to time, that makes those wages, even though paid by US firm, Cdn source. I recoup some RRSP tax using this method.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Pierrem
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Joined: Sat Feb 16, 2019 12:00 pm

Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by Pierrem » Tue Mar 05, 2019 9:17 pm

Nelson, I really appreciate your profesionalism. All the Canadians with RRSP should read this and let the money there. At the time I did the withdrawal, everywhere on net on all kind of sites - lawyers and tax profesionals - was written that the best moment to withdraw is as a US resident because you only pay the 25% or less ( lump sum or monthly/ annual ). Versus almost 35% as a Canadian resident. Nowhere that IRS is waiting with all kind of formula for double taxation. The treaty is for blinds.

I found that US residents with RRSP and a wife without a job can transfer the RRSP to the wife and that the wife can retire it completely without to pay Canada tax but in 5 years. True or not ? we still have some RRSP me and my wife and she's not working in US.

With many thanks for the advice,

Pierrem

nelsona
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Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by nelsona » Tue Mar 05, 2019 10:21 pm

False Pierre. The RRSP would have had to already been in spouses name.
So she can withdraw hers about 12-15K a year, and not owe Cdn tax (217 return for refund). There is no 5 year criteria.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Pierrem
Posts: 4
Joined: Sat Feb 16, 2019 12:00 pm

Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by Pierrem » Sat Mar 09, 2019 10:32 am

Nelson,

if the age can make a difference in tax to pay, I'll be 60 in few months and my wife is 54.

I'm thinking to transfer another RRSP I have - not the one I already withdrawn - to my wife, to her RRSP , beeing with the same financial institution. Once done, she can retire - no Canadian tax, as you specifies - a specific amount 10-12 K each year because no job in US.

Questions about some posible scenarios:

1 - the Canada financial institution will retain taxes from the 10-12K withdrawn each time ? if yes, does she needs to file the next year to Canada the 217 form for tax return based on no job in USA ?

2 - should she file a US tax return as well ? as a single person filling ? and report to US the amount from Canada ? I think that beeing under the 12K standard deduction it want be taxable.

3 - in the case of filling toghether the US tax, will the amount received from Canada be considered in the gros income worldwide ? and the tax paid to Canada at the withdrawal moment considered as a FTC ? in other words, she can file the 217 with Canada for all tax reimbursement and still benefit for a FTC with US ?

With gratitude, sincerely,

Pierrem

nelsona
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Re: Canadian RRSP withdrawal and Foreign Tax Credit in US

Post by nelsona » Sat Mar 09, 2019 7:12 pm

Please read my answers carefully. You CANNOT transfer your RRSP to your spouse. Period.

So, for her EXISTING RRSP:

1. They will withhold 25%. She file a Cdn return, 217 election, and gets the money back.
2, She reports the taxable portion on her US JOINT return with you. she cannot file single. Nor can you.
3. You will need to figure the taxable portion in US. I will not answer that question as it ahs been discussed too many time here.
Obviously if she owes no tax in Canada, then there is no foreign tax to be credited.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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