Tax withholding within RRSP

Jaspal · Post by **Jaspal** » Fri Jul 22, 2005 4:43 pm

I live in the US on H1B, but maintain an RRSP with TDW in Canada, which has some US/international securities. TDW has now advised that to reduce tax withholding from 30% to 15% I must fill W-9 form. When asked for clarifications TDW advised that for US persons, tax is withheld on US security transactions (including those not intiated by account holders, such as dividend payments), even if they are within an RRSP. This form will reduce it from 30% to 15%.

Does that mean, even if we have filed for RRSP Tax Differal, we continue to pay tax within an RRSP? If so, any solution to this problem?

Kindly advise. Thanks.

Jaspal

nelsona · Post by **nelsona** » Sat Jul 23, 2005 7:08 am

This is an issue faced by many RRSP holders, even those in Canada, receiving dividends from US companies in their RRSP.

For Cdns the solution is not an eassy one (it is outlined elsewhere by someone else on this board).

For you however, the solution is simple: Make sure you get a 1098 for any US tax withheld and use it on your 1040 just like any other federal tax that has been withheld from you during the year.

The W-9 is simply needed by TDW to get you the reduced rate and the 1098.

Supposedly, this is going to be resolved in next round of treaty protocols.

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

Norbert Schlenker · Post by **Norbert Schlenker** » Sat Jul 23, 2005 3:45 pm

I am happy to be instructed otherwise but my reading of the treaty's Article XXI would indicate that interest and dividends collected on US securities by an RRSP are exempt from US tax. An RRSP is a trust that is resident in Canada (Article IV para 1(b)). The residence of the beneficiary is irrelevant.

I would argue the issue with TDWH Canada.

nelsona · Post by **nelsona** » Sat Jul 23, 2005 8:40 pm

Norbert, this is an open issue right now, and 1000's of Cdn RRSP-holders are getting dinged, so obviously such a clear cogent reading of the treaty is apparently insufficient for TDWH and many other brokerages, nor for the IRS.

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

Jaspal · Post by **Jaspal** » Mon Jul 25, 2005 11:50 am

Nelson, Thanks for the clarification. I didn't know that it works they way it works. Will 1098 given by TDWH be, as if it was a regular investment? I will see when it comes, but just curious if I need to be careful about something in it.