We (US citizens living in the US) are approved to land in Canada prior to the 24th of August. I was the prinicpal applicant so I must land first and my husband can land with me or after me up to the deadline.
We have many questions regarding working, transferring assets, and minimizing taxes after our move. I have emailed Mr. Serbinsky from his website, however, since I have not heard back from him, I guess this is the starting point.
First, thank you so much for this forum which has significant educational value. I feel indebted to you all already.
Second, please tell me how to recapture the fifteen percent tax withheld on Canadian income trust distributions inside US citizens' IRAs. Although I have been assured these taxes should be returned because of tax treaty implications, no one at the trusts, or my brokerage firm, knows how to go about it. Ernst&Young's 2005 guide book says only that it is "difficult." Not enlightening.
Third, since my husband has the option to continue working as an employee of his US firm, or negotiate for contract status after our move, it is important for us to determine whether the company 401k match (8k a year) is worth the tax consequences of remaining an employee--enjoying both CA and US taxation. Of course, we will always have to file US taxes and the 401k does reduce the US side of the equasion.
He does not, unfortunately, have the opportunity to ask for the money as salary. The rule as to compensation changes has been set. He would get the same money reported on a 1099, no different benefits, no increases. Canadian employees in the firm have been through this.
The firm installs energy management systems for large manufacturing companies and the workers travel to the site on Sunday and fly home on Friday. John is an actual worker, so he is not paid the "premium" nor given the salary options salesmen and executives are.
My husband loves his job and does not want to retire but he is 69, so he cannot contribute to an RRSP--this makes everything even more complex from a tax planning perspective. I am 53 and can make contributions, I believe, should I get a paid position. However, since my husband travels, many administrative duties (and report writing, research efforts, travel arrangements, etc.) fall to me. In addition, I manage our investments--which are not enough to allow us to live luxuriously, but are time consuming. I also pay the bills, do our taxes, etc. Taking an external job while he works will be a juggling act.
Conversely, my husband could remain a US resident until he is ready to stop working and I would then sponsor him as long as I could be sure that my assets are sufficient for CIC to approve. Since he flies home anyway, he could visit me every other weekend and I could visit him....we would see each other about the same amount as now.
So, those are a few of our questions. Any insight will be appreciated.
sharon
pre-immigration planning
Moderator: Mark T Serbinski CA CPA
I'll let someone else address your overall situation if they wish, however, the fact that YOU are not yet 69 means that HE is allowed to make spousal RRSP contributions and receive deductions for them (on his Cdn taxes), once he as earned income for one year in canada.
Once he resides in canada, he coulds still contribute to his 401(K) to get the matching. Although his contributions would not be deductible in canada, he would, at the time that he starts withdrawing from them, be allowed to reduce the taxable ammount -- in canada -- by those non-deductible contributions. This is allowed for Cdn RESIDENTS contributing to a 401(k).
<i>nelsona non grata</i>
Once he resides in canada, he coulds still contribute to his 401(K) to get the matching. Although his contributions would not be deductible in canada, he would, at the time that he starts withdrawing from them, be allowed to reduce the taxable ammount -- in canada -- by those non-deductible contributions. This is allowed for Cdn RESIDENTS contributing to a 401(k).
<i>nelsona non grata</i>
Thank you both!
If John takes the contractor position, could he pay me for my work as self-employed people can do in the US? Then, could I start my own RRSP using my wages? I certainly work at least 50 hours a week on all of our endeavors. I also assist (gratis, of course) my friends/family in Canada (Alberta and BC) with simple financial matters and have started working with an incometrust investor website on analyses and site marketing. This is not paid now, but our agreement is for me particpate in the profits of the site as (and if) they appear--once I land in Canada. The site home is in Toronto, however.
We are transferring all of our joint assets and John's Roth to me as a matter of course, John's traditional IRA and SEP-IRA are less clear. It remains tax deferred until mandatory withdrawals begin late 2007, even in Canada. Because I am significantly younger, our mandatory withdrwals will be low. I have recharacterized and moved our Roth contributions for 2004 and 2005 to our traditional IRAs as "yall" have recommended in several notes to others. Again, thank you.
My husband's best friend and colleague lives in Quebec, but we are not sure how effective his "advice" is. Although a wonderful person, engineer, and energy reducer, his financial acumen is not known and his province seems quite unique in taxation (and many other) matters. Is this an accurate perception or are there more similarities than dfferences?
I wonder if anyone knows how to recapture those withheld taxes I mentioned in my first post? I cannot file our taxes until I know whether to itemize these amounts and fill out some form or other that might then affect our bottom line. Or better yet, in this case, top line.
In appreciation, Sharon Masker
sharon
If John takes the contractor position, could he pay me for my work as self-employed people can do in the US? Then, could I start my own RRSP using my wages? I certainly work at least 50 hours a week on all of our endeavors. I also assist (gratis, of course) my friends/family in Canada (Alberta and BC) with simple financial matters and have started working with an incometrust investor website on analyses and site marketing. This is not paid now, but our agreement is for me particpate in the profits of the site as (and if) they appear--once I land in Canada. The site home is in Toronto, however.
We are transferring all of our joint assets and John's Roth to me as a matter of course, John's traditional IRA and SEP-IRA are less clear. It remains tax deferred until mandatory withdrawals begin late 2007, even in Canada. Because I am significantly younger, our mandatory withdrwals will be low. I have recharacterized and moved our Roth contributions for 2004 and 2005 to our traditional IRAs as "yall" have recommended in several notes to others. Again, thank you.
My husband's best friend and colleague lives in Quebec, but we are not sure how effective his "advice" is. Although a wonderful person, engineer, and energy reducer, his financial acumen is not known and his province seems quite unique in taxation (and many other) matters. Is this an accurate perception or are there more similarities than dfferences?
I wonder if anyone knows how to recapture those withheld taxes I mentioned in my first post? I cannot file our taxes until I know whether to itemize these amounts and fill out some form or other that might then affect our bottom line. Or better yet, in this case, top line.
In appreciation, Sharon Masker
sharon
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Norbert Schlenker
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<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by slmasker</i>I wonder if anyone knows how to recapture those withheld taxes I mentioned in my first post? I cannot file our taxes until I know whether to itemize these amounts and fill out some form or other that might then affect our bottom line. Or better yet, in this case, top line.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
It depends what the distributions are. Canadian income trusts can distribute interest, dividends, capital gains, other income, and return of capital. Any individual trust should be able to tell you how much of each of those was in their distributions for the year.
Interest and dividends collected by a retirement plan like your IRA are exempt per the treaty. The broker holding your account should be presented with a copy of the treaty's Article XXI paragraph 2. Capital gains, as long as they are not from real property, are exempt from Canadian taxation inside or outside an IRA per Article XIII. Return of capital is exempt in both countries, period.
Now the problem: Parts or all of some trusts' distributions may be none of the above. They may be classified as "other income"; i.e. business income. Business income is taxable in the country in which it arises, taxes can and will be withheld, and the tax treaty makes no provision for exempt organizations (like your IRA) on the other side of the border to retrieve such withholdings. You also get no benefit on your regular tax return, either as a deduction or a foreign tax credit.
If it's any consolation, Canadian residents have exactly the same problem if they hold US securities structured as limited partnerships in their RRSPs.
It depends what the distributions are. Canadian income trusts can distribute interest, dividends, capital gains, other income, and return of capital. Any individual trust should be able to tell you how much of each of those was in their distributions for the year.
Interest and dividends collected by a retirement plan like your IRA are exempt per the treaty. The broker holding your account should be presented with a copy of the treaty's Article XXI paragraph 2. Capital gains, as long as they are not from real property, are exempt from Canadian taxation inside or outside an IRA per Article XIII. Return of capital is exempt in both countries, period.
Now the problem: Parts or all of some trusts' distributions may be none of the above. They may be classified as "other income"; i.e. business income. Business income is taxable in the country in which it arises, taxes can and will be withheld, and the tax treaty makes no provision for exempt organizations (like your IRA) on the other side of the border to retrieve such withholdings. You also get no benefit on your regular tax return, either as a deduction or a foreign tax credit.
If it's any consolation, Canadian residents have exactly the same problem if they hold US securities structured as limited partnerships in their RRSPs.
CRA indicates that the new tax provisions for non-resident income trust distributions held in non-resident tax-deferred plans will be dealt with in this manner: Each company will send unitholders an NR$ detainling the distribution, its categorized income subsets, and tax withheld. These NR4s will go to bokerage firms, if they hold the securities in their name, or to individuals who own them (somehow) in their own name in an IRA.
At this point, at least, the next step will involve the borkerage firms sendings these NR4s to individuals who will use them to file NR7-rs for refunds. It may be that, at least by next year, this process will be streamlined in order to circumvent refunds being sent to individuals and then having to be re-deposited into the IRAs so as not to incur taxes on distributions.
Fidelity indicated to me that the major brokerage firms, the IRS and CRA are having conversations to smooth and rationalize reporting and taxation in this situation. The involved income trust companies will undoubtably apply some pressure as well. Their unit prices will fall if foreign holders find the reporting mechnanisms too complex and divest themselves of the securities.
sharon
At this point, at least, the next step will involve the borkerage firms sendings these NR4s to individuals who will use them to file NR7-rs for refunds. It may be that, at least by next year, this process will be streamlined in order to circumvent refunds being sent to individuals and then having to be re-deposited into the IRAs so as not to incur taxes on distributions.
Fidelity indicated to me that the major brokerage firms, the IRS and CRA are having conversations to smooth and rationalize reporting and taxation in this situation. The involved income trust companies will undoubtably apply some pressure as well. Their unit prices will fall if foreign holders find the reporting mechnanisms too complex and divest themselves of the securities.
sharon