Someone please help me RRSP room calculation regarding to 401 (k) deduction
Moderator: Mark T Serbinski CA CPA
Someone please help me RRSP room calculation regarding to 401 (k) deduction
When I filled my 2017 tax return, I did form RC268. My own contribution was put in on line1, 2 and 3 of the first part for calculating the deduction. This is for line 207. The company’s contribution was put in on line 2 of the second part for calculating the prescribed amount as Pension adjustment. This is for line 206.
From the notice of Assessment about how RRSP room was calculated, the 401 (k) deduction was not taken away from the 2017 RRSP deduction limit at all, so for 2018 RRSP deduction limit, I have the whole RRSP deduction limit left from 2017, plus the 18% of earned income, minus 2017 pension adjustment.
I know CRA use RRSP deduction limit to cap 401(k) deduction, but why the room was not taken away by the 401(k)?
I don’t think I did the return wrong, just want to know the sense behind it. Anybody can explain? Thanks!
From the notice of Assessment about how RRSP room was calculated, the 401 (k) deduction was not taken away from the 2017 RRSP deduction limit at all, so for 2018 RRSP deduction limit, I have the whole RRSP deduction limit left from 2017, plus the 18% of earned income, minus 2017 pension adjustment.
I know CRA use RRSP deduction limit to cap 401(k) deduction, but why the room was not taken away by the 401(k)?
I don’t think I did the return wrong, just want to know the sense behind it. Anybody can explain? Thanks!
Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
No idea why your annual limit was not reduced by your 401(k) contributions.
See if it happens again this year.
See if it happens again this year.
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
Hello!
I am filing first time in Canada, 2018 tax year (CDN resident but continue working in the States - daily commute);
"Based on the US-CDN treaty, the CDN residents with existing US Pension Plans are to enjoy continued tax deferral, just as they would if they were still US residents. Furthermore, the amount of any contributions to the US plan will be taken into account in determining the individual's RRSP contribution room amount" (!!!)
...my question then -- WHY can't I deduct my 2018 contributions to my existing US plan?! (the "excuse" that I will enjoy the future withdrawals free of CDN taxes is nonsense because I will be back in the States regardless so I would not pay CDN tax ANYWAY -- YET, contravening everything stated above,
my contributions are still NOT recognized - because of no RRSP room in the first year -- so what happened to the statements from the US/CDN Income Tax Act?!?
This concerns RC268 form.
I am filing first time in Canada, 2018 tax year (CDN resident but continue working in the States - daily commute);
"Based on the US-CDN treaty, the CDN residents with existing US Pension Plans are to enjoy continued tax deferral, just as they would if they were still US residents. Furthermore, the amount of any contributions to the US plan will be taken into account in determining the individual's RRSP contribution room amount" (!!!)
...my question then -- WHY can't I deduct my 2018 contributions to my existing US plan?! (the "excuse" that I will enjoy the future withdrawals free of CDN taxes is nonsense because I will be back in the States regardless so I would not pay CDN tax ANYWAY -- YET, contravening everything stated above,
my contributions are still NOT recognized - because of no RRSP room in the first year -- so what happened to the statements from the US/CDN Income Tax Act?!?
This concerns RC268 form.
Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
The treaty is clear, 401(k) contribs can only be deducted to the extent that you would be able to deduct similar RRSP contribs. That is the very purpose of RC268. that is what "taken into account" means in your quotation.
Until 2009, NO 401(k) contribs were deductible.
Until 2009, NO 401(k) contribs were deductible.
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
So if I understand this correctly then, I have no choice but eat the double taxation in the first year?
Is it worth filling out RC268 at all then?
Is it worth filling out RC268 at all then?
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
p.s. could my CDN spouse's available RRSP room be used?
Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
You cannot use her contribution room.
You must file RC268 if you participated in your 401(k), and/or your employer had a pension plan for you, in order for your pension adjustment to be correctly determined. Cdn employers must do this for their employees too. CRA makes you do it for your US employer.
You must file RC268 if you participated in your 401(k), and/or your employer had a pension plan for you, in order for your pension adjustment to be correctly determined. Cdn employers must do this for their employees too. CRA makes you do it for your US employer.
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
RE: RC268 and first year US filers in Canada without RRSP contribution room. I had a chat with 2 different CRA agents ...I know, I know what you think...but hear me out:
ITA cause 56(1)(a)(i)(C.1) exempts "foreign retirement arrangements" from tax "to the extent that the amount would not, if the taxpayer were resident in the country (the United States), be subject to income taxation in the country."
So, while my contributions automatically reduce the starting baseline from which the taxes are calculated in the US (as it is very evident from my 1040 and W2), it is exactly the opposite in Canada -- those contributions are included, therefore increasing the taxation baseline.
Both agents, independently agreed that in my case, the legislation has fallen between the cracks. They suggested filing an objection (or appeal?).
Is it worth pursuing in your opinion? (it certainly makes a difference of a few thousand!)
ITA cause 56(1)(a)(i)(C.1) exempts "foreign retirement arrangements" from tax "to the extent that the amount would not, if the taxpayer were resident in the country (the United States), be subject to income taxation in the country."
So, while my contributions automatically reduce the starting baseline from which the taxes are calculated in the US (as it is very evident from my 1040 and W2), it is exactly the opposite in Canada -- those contributions are included, therefore increasing the taxation baseline.
Both agents, independently agreed that in my case, the legislation has fallen between the cracks. They suggested filing an objection (or appeal?).
Is it worth pursuing in your opinion? (it certainly makes a difference of a few thousand!)
Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
The exemption is for tax on the INCOME form that arrangement, not the contributions. CRA is CLEAR on how 401(K) contributions are to be treated. the TREATY is also clear. This was all resolved in 2010, when the treaty was amended. Before then, even with the ITA section you quoted, 401k contribs were NOT deductible at all from income. Now they are, subject to the RC268 filing.
The argument is a non-starter.
The argument is a non-starter.
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
Remember, CRA telephlunkies are not to be trusted.
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
OK but the fact remains that my contributions for the first year are taxed, and there's nothing I can do about it. I don't think the treaty or the rules cover this situation (and they should).
Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
Yes it does. You do not have contribution room. ALL newcomers to Canada face this situation for RRSP contributions. And the treaty states:
Article XVII
11. For the purposes of Canadian taxation, the amount of contributions otherwise allowed as a deduction under paragraph 10 to an individual for a taxation year shall not exceed the individual’s deduction limit under the law of Canada for the year for contributions to registered retirement savings plans remaining after taking into account the amount of contributions to registered retirement savings plans deducted by the individual under the law of Canada for the year. The amount deducted by an individual under paragraph 10 for a taxation year shall be taken into account in computing the individual’s deduction limit under the law of Canada for subsequent taxation years for contributions to registered retirement savings plans.
This section was added for this very purpose, because Cdn tax law didn't permit the deduction, and still doesn't.
Note: "shall not exceed the individual’s deduction limit under the law of Canada for the year for contributions to registered retirement savings plan"
So, by treaty, US pension contributions are NOT deductible UNLESS you have RRSP room.
That is why RC268 was created.
Article XVII
11. For the purposes of Canadian taxation, the amount of contributions otherwise allowed as a deduction under paragraph 10 to an individual for a taxation year shall not exceed the individual’s deduction limit under the law of Canada for the year for contributions to registered retirement savings plans remaining after taking into account the amount of contributions to registered retirement savings plans deducted by the individual under the law of Canada for the year. The amount deducted by an individual under paragraph 10 for a taxation year shall be taken into account in computing the individual’s deduction limit under the law of Canada for subsequent taxation years for contributions to registered retirement savings plans.
This section was added for this very purpose, because Cdn tax law didn't permit the deduction, and still doesn't.
Note: "shall not exceed the individual’s deduction limit under the law of Canada for the year for contributions to registered retirement savings plan"
So, by treaty, US pension contributions are NOT deductible UNLESS you have RRSP room.
That is why RC268 was created.
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
Article XVIII of course, not XVII
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Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
My point still stands though -- the "no RRSP room" for the first year is an excuse to extract a little more and the treaty apparently does not cover this situation -- because RC268 does nothing for me (or other newcomers) in the same situation -- yet it would still benefit the Canadian residents who may be returning.
If anything, the contributions for the first year should be recognized either by lowering the employment income OR being able to claim registered plan contributions (such as on line 207). The quoted ITA clause refers to "foreign retirement arrangements", it does not specify that it is income only.
That's my view, of course, and how I see it being just in the spirit of preventing double taxation.
If anything, the contributions for the first year should be recognized either by lowering the employment income OR being able to claim registered plan contributions (such as on line 207). The quoted ITA clause refers to "foreign retirement arrangements", it does not specify that it is income only.
That's my view, of course, and how I see it being just in the spirit of preventing double taxation.
Re: Someone please help me RRSP room calculation regarding to 401 (k) deduction
The remedy (and I know it doesn't apply to you because you will leave before you benefit) is as it always was, and continues to be: 401k contributions that were disallowed (either all before 2009) or since then as a result of not being allowed to claim them, will be treated as coming out of your 401(k) Cdn tax free. So just keep track of what you could not claim.
ALL new Cdns residents have this issue when they move or return to Canada: little or no RRSP room, same with kids working for the first year, etc.
At least you have the advantage of being able to put money in the 401k. if you worked in Canada, you would not be allowed to fund an RRSP the first year at all.
It isn't a treaty issue, the treaty fixed the problem. It is an RRSP contribution rule problem., which you would have even if you never put a cent in your 401k.
ALL new Cdns residents have this issue when they move or return to Canada: little or no RRSP room, same with kids working for the first year, etc.
At least you have the advantage of being able to put money in the 401k. if you worked in Canada, you would not be allowed to fund an RRSP the first year at all.
It isn't a treaty issue, the treaty fixed the problem. It is an RRSP contribution rule problem., which you would have even if you never put a cent in your 401k.
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