RRSP lump-sum withdrawal Form 1116, MA Form1 Line30

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Cdn95Expat
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Joined: Tue Mar 19, 2019 7:09 pm

RRSP lump-sum withdrawal Form 1116, MA Form1 Line30

Post by Cdn95Expat » Tue Mar 19, 2019 8:16 pm

Hi, thanks for this forum! If completely withdrew all RRSPs in lump-sum, with Non-Resident 25% tax withheld, and for simplicity, let's use example:
$136,200 CAD, which converts to $100,000 USD (since Treasury conversion rate on 12/31/18 was $1.362);
$34,050 CAD income tax withheld to be paid to CRA, which converts to $25,000 USD;
then for simplicity, let's use example, that after completing Form 1116, you end up with your Foreign Tax Credit being limited to $15,000.

Since you have no more RRSPs, and it's unlikely will have any more foreign income in the next 10 years, then the $10,000 carryover is likely a loss.
Now at the state level in MA, I find it a bit confusing. If English isn't your first language, it's easy to get tripped up. I was told by someone that if you take the "full" allowable Foreign Tax Credit amount on your federal, then you CANNOT take a credit on the state return. I don't agree with that interpretation. I think the MA Form 1 Line 30 instructions just says that, using above example, you have to deduct the $15,000, from the $25,000, which equals $10,000. Then after you complete the worksheet for Line 30, you have to limit the foreign tax credit on the state return, to the smaller of the amount in worksheet bullet 7 or the $10,000. So you could end up with a loss at the state level too, with no carryover option even available. The wording is not saying that if you've taken the full allowable FTC on the federal, then you cannot take any FTC on the state return, correct? Otherwise that would mean that you'd be double-taxed on the total foreign income at the state level.

thanks in advance for your time and help!

nelsona
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Re: RRSP lump-sum withdrawal Form 1116, MA Form1 Line30

Post by nelsona » Mon Mar 25, 2019 10:19 am

Each state is different, and most do not give foreign tax credit, and some only give credit for PROVINCIAL tax (which your NR tax in NOT). Which state are you talking about?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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