Please read/post about RRSP in US Here!!!

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nelsona
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Please read/post about RRSP in US Here!!!

Post by nelsona » Fri Oct 29, 2004 8:17 am

We get many questions about handling RRSPs when living in US.

These can be about finding a Cdn broker to hanlde your account, or how to report your RRSP to IRS and state tax agencies.

<i>nelsona non grata</i>

Mark T Serbinski CA CPA
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Post by Mark T Serbinski CA CPA » Fri Oct 29, 2004 10:17 am

nternal Revenue Service has recently (April 11, 2003) issued Rev. Proc.
2003-25, which outlines the new filing requirements for U.S. persons who have
an interest in or transactions with Canadian Registered Retirement Savings
Plans (RRSP's). For the purpose of this document, RRSP's include RRIF's and
RESP's.

Rev. Proc. 2003-25 outlines the filing requirements for forms 3520 and 3520A in
respect of Canadian RRSP's, but exempts most persons from the filing
requirements if they have met disclosure standards outlined in the prior Rev.
Proc. 2002-23.

Our analysis of the new rules appears at the following link:

http://www.serbinski.com/Whatsnew/Newar ... _3520.html

If you have a Canadian RRSP or have had transactions with your RRSP, you may
wish to read the above information to determine whether further action is
required.

Clients for whom this firm has prepared U.S. income tax returns need to take no
further action at this time.

Regards,

Mark T. Serbinski, CA, CPA

Mark T Serbinski CA CPA
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Post by Mark T Serbinski CA CPA » Fri Oct 29, 2004 10:19 am

IRS has issued form 8891 (still in draft) which will simplify the reporting of RRSP's on U.S. tax returns.

Regards,

Mark T. Serbinski, CA, CPA

nelsona
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Post by nelsona » Fri Oct 29, 2004 10:44 am

The rev PROC which Mark refers to is actually Rev. NOTICE 2003-25 and has been supeceded by Rev. Notice 2003-75.

Mark's link abour Form 3520 is OLD NEWS and not applicable for 2003 or furure tax years.

This applied ONLY to the 2002 tax year, as Form 8891 will be implemented for the 2004 tax year.

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nelsona
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Post by nelsona » Fri Oct 29, 2004 11:52 am

Some relevant documnents:
Rev. Proc 2002-23:

http://www.unclefed.com/Tax-Bulls/2002/rp02-23.pdf

Rev. Notice 2003-75:

http://www.unclefed.com/Tax-Bulls/2003/not03-75.pdf

and Form 8891

http://www.irs.gov/pub/irs-dft/d8891.pdf
Note: This is a draft and will likely move on IRS website.





<i>nelsona non grata</i>

SBD
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Post by SBD » Mon Nov 01, 2004 1:59 pm

I recall reading somewhere on the forum several years ago that there is a certain amount of distribution a US resident can take out of their Canadian RRSP annually without any tax implications. It was suggested as a tax-minimizing strategy. With the Canadian dollar so strong, I am thinking about doing this, but now can't find any reference to the amount anywhere. Can anyone help?
Thank you!

Edward
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Post by Edward » Mon Nov 01, 2004 4:18 pm

ALL I CAN TELL YOU IF IT IS A RRIF YOU CAN TAKE OUT ON A PERIODIC BASIS 2X THE MINIMUM ALLOWABLE AT TAX RATE OF 15% INSTEAD OF THE 25% ON A LUMP SUM. WHAT YOU COULD DO UNDER THIS PLAN WOULD BE TO TAKE OUT YOUR MINIMUM AT 15% THEN THE BALANCE IN A LUMP AT 25%.

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Post by pl091000 » Thu Nov 04, 2004 7:55 am

Nelson or Mark,
would either of you mind once again outlining the procedure to remove money from a non working spouse's RRSP (personal or spousal RRSP)in order to negate or minimize any taxes due either in Canada or the United States.
Thanks.

nelsona
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Post by nelsona » Sun Nov 07, 2004 8:15 am

Any non-resident is allowed to withdraw moneys from there RRSP/RRIF and pay 'normal' Cdn tax instead of 25% flat tax. It is called a 217 election and is described in detail on CRA website.

To do so however, one must report WORLD income and pay equivalent tax on that, so a person earning much more that $20K-30K from other sources, is actually better off just paying 25% flat tax (or 15% from regualr RRIF withdrawal).

Someone making little or no income however (like a non-working spouse) has the advantage of getting the basic persaonal ammount plus any other allowable credits and deductions, and , since they don't have any world income to report, will pay much less than 25% in the end.

For example, one pulling out $8K, will pay no tax. If one has medical expenses (and that includes the med expenses and premiums that the working spouse is paying) one could easily add 2-3K more to the withdrawal and still pay no Cdn tax. Same for any other of the credits that you can claim on the 217 return.

It should be pointed out that, unless you have cleared this previously with CRA (by filing an NR5) your broker will still withhold 25%, but you get it back when you file the 217 return in the spring.

It is probably too late to bother with NR5 for this year, so now you would just take the money, pay the 25% and collect it back in April.

Remember, in a year when you withdraw from you RRSP, you now have to report any post-US arrival income on 16(b) of 1040, so you would have some little US tax to pay.

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Post by Mark T Serbinski CA CPA » Tue Nov 09, 2004 5:30 pm

Hi Nelson:

Just to clarify what is taxable in the U.S. in respect of RRSP withdrawals...

The entire RRSP withdrawal is defined by Article 9(7) of the Third Protocol to the Convention as a "pension", and is taxed in accordance with Article XVIII(1) of the Convention. Of course, a foreign tax credit may be used to eliminate double taxation in the U.S.

Since XVIII(1) taxes the entire pension income in the U.S., but in the same manner as it would be taxed in Canada, there appears to be no relief from U.S. tax for any pre U.S. entry RRSP contributions.



Regards,

Mark T. Serbinski, CA, CPA

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Post by ruthm » Wed Dec 01, 2004 5:58 pm

My husband and I are Canadians with green cards; we have lived and worked in the US (NM) since 1990. I have an RRSP, and recently became aware that there are actually IRS filing requirements. We had thought the tax treaty directly covered them so reporting was unnecessary, just as nothing is reported on the 1040 for US retirement plans. Now that we know, we'd like to get things back on track.

2003 was the first year since 1996 that my RRSP paid a distribution. I have made no contributions or withdrawals since moving to the US, although I did close a second RRSP and roll it into this one, also in 1996. IRS notices 2003-57 and 2003-75 almost seem to imply a kind of "amnesty" for people in our situation to get everything squared away. (Or is that a wishful interpretation?)

Anyway, is the best move now to amend just our 2003 return and file the form(s) to elect deferral on that year's plan income, perhaps including documentation to show the lack of income from the RRSP in the previous 6 years? (The share price has increased significantly.) Or do I need to go back further than that? I don't know whether some statute of limitations would apply to this, or whether even the IRS has a limit to the amount of paperwork they can stand. :-} Most of the other queries on this board and the old forum seem to relate to much more recent immigration to the US, so we are not sure how to proceed. We want to comply with the law, though we also wonder what to expect from the IRS when we file this paperwork.

Also, are there any special requirements for NM?

Thank you very much!

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Post by nelsona » Wed Dec 01, 2004 7:18 pm

Rev Proc 2002-23 allowed for a return to ~1996 in order to fixe your returns, and this is waht I would do.

You attach a statement in compliance with the Rev. Proc for 1996 and a photocopy thereafter for each current account.

There is a special procedure outlined for years after a transfer.

I prepared several such ststements which can be forund at

http://www.canadatotwincities.com/rrsp.html

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nelsona
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Post by nelsona » Wed Dec 01, 2004 7:26 pm

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by Mark T. Serbinski, CA CPA</i>

Hi Nelson:

Just to clarify what is taxable in the U.S. in respect of RRSP withdrawals...

The entire RRSP withdrawal is defined by Article 9(7) of the Third Protocol to the Convention as a "pension", and is taxed in accordance with Article XVIII(1) of the Convention. Of course, a foreign tax credit may be used to eliminate double taxation in the U.S.

Since XVIII(1) taxes the entire pension income in the U.S., but in the same manner as it would be taxed in Canada, there appears to be no relief from U.S. tax for any pre U.S. entry RRSP contributions.



Regards,

Mark T. Serbinski, CA, CPA
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


This is incorrect, as Rev Proc 2002-23 clearly points to IRS code as allowing for a calculation of both taxable and non-taxable portion, since pre-arrival income (for non-US citizens) was not subject to taxation. Section 72 or 74 is the relevant code.

Historically, Rev Proc 89-45 clearly stated the pre-arrival gain were not to be included in income. It also stated that contributions by US citizens were not taxable, as return of principle.

Moreover, a US citizen would not be taxed on the contribution portion of the RRSP in any case, and thus by non-discrimination clause, neither would a Cdn be so taxed.

California, which does not allow deferral, also follows the principle of allowing pre-arrival value to be the new basis.

Finally, if the entire withdrawal was to be taxable at 16(b), why would the brand new 8891 Form prepared by IRS, go thriu elaborate detail as to howe to figure out the taxable portion of the withdrawl. They would simply say to include it all.

No, Mark, on this one you have been wrong for quite a number of years, but should change your view given the all the new info from IRS on this since Rev. Proc 2002-23.

<i>nelsona non grata</i>

NKy586
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Post by NKy586 » Thu Dec 09, 2004 5:51 pm

I have just found out through this forum about the RP 2002-23 requirement and that I need to file a 1040-X for past years. I'm in the process of writing up the letter attachment.

One question: in one of my years, the balance drops by about 60%, partly due to a bad market year, but mostly because I went through a divorce and had to give half to my ex. Do I need to make any notation on the letter explaining the large drop in that year, or for any other reason for that matter.

If it makes any difference, my ex moved back to Canada before she received her split.

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Post by nelsona » Fri Dec 10, 2004 1:06 am

You do have to make a notation for that year, and in fact, you have to file an 8833 for that year, otherwise you are liable for tax on what IRS would consider a withdrawal.

The tax treaty only allows IRS to include RRSP income on your 1040 to the extent that it was included as income in Canada.

Since this was part of a divorce settlement, the RRSP 'withdrawal' was considered a transfer to your spouse, and thus not taxable to you. You need to indicate this on an 8833 for the year in question.


TAX TIP:As you may know, only the gains/income made after arrival in US are taxable by IRS (at the time when you make an RRSP withdrawl). It would be wise to account for ALL your gains up 'til the time of your divorce settlement/transfer, and include these as part of your non-taxable withdrawal for that year.

That way, you are then only responsible for paying IRS tax on the gains made post-divorce.

But for the purposes of RP 2002-23, all you should do is make ONE statemebt for each account for the FIRST year you were in US, and then attach a photocopy of that same statement to a 1040-X for each subsequeny year (there was no requirement to make any accounting on the RP2002-23 statement). For your divorce year, make a note about the 8833 benefit you are claiming. For 2003 you are required to put a year-end balance on the RP 2002-23 statement for that year.

In 2004, you will use the new form 8891, with its instructions.

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