RRSP withdrawals for 0 income spouse in US

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
ETA
Posts: 12
Joined: Thu Oct 28, 2004 10:25 am

RRSP withdrawals for 0 income spouse in US

Post by ETA »

Could someone point me to the threads where this was discussed -- I've been unable to find them so far.

What I'm looking for is the info on how a spouse with zero (or really low) income can withdraw funds from his/her RRSP and pay no tax as long as the amount is below some threshold (about 8K if I remember correctly). I believe there were 2 paths to this a) you fill out some form before the withdrawal is made so you never pay tax and b) you pay withholding tax then claim it back later.

Or did I imagine this...?

ETA
nelsona
Posts: 18353
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Look for '217' on this and on grasmick site. CRA has sufficient info on this for anyone to be able to understand.

My wife has been steadily taking about $10K every year (with other expenses) and paying no Cdn tax.

Her US tax liability on her post-US arrival gains is also minimal.

<i>nelsona non grata... and non pro</i>
ETA
Posts: 12
Joined: Thu Oct 28, 2004 10:25 am

Post by ETA »

Thanks Nelson!

I'll add the actual links once I track them down.

So, in your case, are you paying the tax then getting it back, or am I right that with the right preparation (form) you can avoid having to deal with any withholding tax / filing a return to get it back?

ETA
nelsona
Posts: 18353
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

We typically submit to CRA an NR5 form every year, and they send us and the broker the rate at which tax will be withheld.

Then we file 217, including as many expenses as we need to make the Cdn tax zero or almost.

If you do reduce the withholdding, you MUST file a 217 to prove your world income. They don't simply take your word for it on NR5.

Since there is always a little US tax to pay, it does make sense to take enough out of your RRSP to pay a 'little' Cdn tax so as to get a foreign tax credit.

The expenses you can use are, typically, medical expenses and cdn charities (this includes expenses by ewither spouse, not just the non-working spouse).

As I said, although the basic ammount is only $8,000 we typically take out 10-11K and reduce the tax with med expenses to (last year) $10, 7 of which we used on form 1116 to cover minimal US tax on the RRSP income.



<i>nelsona non grata... and non pro</i>
barb1948
Posts: 6
Joined: Fri Jul 01, 2005 9:19 am

Post by barb1948 »

Nelsona:

You were very helpful to me when I asked about my son and daughter in law moving back to the US and how to take their rsp with them.... I understand there is a 25% tax. The tax money that received becasue of the rsvp would be equal, if not more than the 25%, so not to feel too bad.... BUT I see some info in this post that confuses me. Can you withdraw $10,000 per year from the RSP without paying taxes? It is all based on household income? Both of them have no income at the moment, but he will have income when he starts his new job in Oct. 1..... Am I reading this all wrong? Many thanks. Barbara
nelsona
Posts: 18353
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Please read the 217 guide. All income from whaever source in the year must be taken into account in determining any lower tax rate.

However it is not based on household income, since Canada doesn't have a joingt filing system; it is based on the individuals income.

<i>nelsona non grata... and non pro</i>
Post Reply