First of all thanks for hosting this forum.
I’m a Canadian Citizen (Permanent US Resident) Wife is a US Citizen (Permanent Canadian Resident) we both reside in Canada and commute daily for employment in the US. In 2004 I withdrew money from my RRSP to purchase our first house in Ontario and I’m hoping someone could answer a few questions for me.
1. Would this withdraw <b>not</b> be taxable by IRS because of ARTICLE XVIII Pensions and Annuities (if I'm reading it correctly)
2. I would need to file 8833 to take this election?.
3. The section of 8833 that is a little confusing is where it asks to”<b>Check this box if the taxpayer is a U.S. citizen or resident or is incorporated in the United States</b>” because I’m a permanent resident I always assumed that you are taxed just like a US citizen.. so I’m not sure what my answer would be.
Thank you for your time.
HBP and IRS
Moderator: Mark T Serbinski CA CPA
-
Mark T Serbinski CA CPA
- Site Admin
- Posts: 611
- Joined: Tue Oct 26, 2004 8:05 pm
- Contact:
Hi Greg:
From what you write, it appears that your primary residence is in Canada, and that you commute daily to the U.S. for work. In addition, both of you are taxable in the U.S. on your world income because of permanent residence or citizenship, and you are also taxable in Canada on the basis of residence.
To paraphrase Article XVIII of the Convention, it generally says that you will be taxable in the U.S. on Canadian pension (which includes RRSP's, pursuant to Article 9(7) of the Third Protocol) income, but only to the same extent as you would be taxed in Canada on the same income. (That is to say that if you get a special deduction or break in the tax in Canada, that same reduction would apply in the U.S.).
In your case, you withdrew RRSP funds in Canada. You first need to complete your Canadian return, including the RRSP income, U.S. income, and other income, calculate the tax, and deduct a foreign tax credit for non Canadian income. Secondly, you need to complete your U.S. returns, including the RRSP income, and deduct a foreign tax credit from the net tax paid on the RRSP income in Canada.
The bottom line is that you will have reciprocal foreign tax credits on your returns, but you will pay no more than the tax you paid in Canada overall to Canada and the U.S.
Regards,
Mark T. Serbinski, CA, CPA
From what you write, it appears that your primary residence is in Canada, and that you commute daily to the U.S. for work. In addition, both of you are taxable in the U.S. on your world income because of permanent residence or citizenship, and you are also taxable in Canada on the basis of residence.
To paraphrase Article XVIII of the Convention, it generally says that you will be taxable in the U.S. on Canadian pension (which includes RRSP's, pursuant to Article 9(7) of the Third Protocol) income, but only to the same extent as you would be taxed in Canada on the same income. (That is to say that if you get a special deduction or break in the tax in Canada, that same reduction would apply in the U.S.).
In your case, you withdrew RRSP funds in Canada. You first need to complete your Canadian return, including the RRSP income, U.S. income, and other income, calculate the tax, and deduct a foreign tax credit for non Canadian income. Secondly, you need to complete your U.S. returns, including the RRSP income, and deduct a foreign tax credit from the net tax paid on the RRSP income in Canada.
The bottom line is that you will have reciprocal foreign tax credits on your returns, but you will pay no more than the tax you paid in Canada overall to Canada and the U.S.
Regards,
Mark T. Serbinski, CA, CPA
Thanks Mark… I’m still a little confused. Please bear with me.
Under the HBP I do not have to pay taxes on the withdraw in Canada (Not taxable) unless you do not repay 1/15th of the amount withdrawn every year, and even then I would only include in my income in Canada 1/15th of the original withdraw.
So as you pointed out this is taxable int the US“<b>but only to the same extent as you would be taxed in Canada on the same income</b>.” This would not be taxable in the US by Article XVIII of the Convention.
So Am I to assume this is not taxable in the US because it’s not taxable in Canada?.
Thanks again.
Under the HBP I do not have to pay taxes on the withdraw in Canada (Not taxable) unless you do not repay 1/15th of the amount withdrawn every year, and even then I would only include in my income in Canada 1/15th of the original withdraw.
So as you pointed out this is taxable int the US“<b>but only to the same extent as you would be taxed in Canada on the same income</b>.” This would not be taxable in the US by Article XVIII of the Convention.
So Am I to assume this is not taxable in the US because it’s not taxable in Canada?.
Thanks again.
Mark, it should also be pointed out that this might be a mute point in my situation.
The RRSP was opened in 2003 and made very, very little income over the original contribution that I made prior to my HBP withdraw in 2004. So even if I added the income generated from the RRSP I doubt it would affect my final tax outcome in the US.
But I just would like to file the proper way either with form 8833 or include the income on my 1040.
Thank You
The RRSP was opened in 2003 and made very, very little income over the original contribution that I made prior to my HBP withdraw in 2004. So even if I added the income generated from the RRSP I doubt it would affect my final tax outcome in the US.
But I just would like to file the proper way either with form 8833 or include the income on my 1040.
Thank You
-
Mark T Serbinski CA CPA
- Site Admin
- Posts: 611
- Joined: Tue Oct 26, 2004 8:05 pm
- Contact:
Hi Greg
Sorry, I missed the Home Buyers Plan reference. Under this case, the withdrawal would not be considered a taxable withdrawal in the U.S. due to Article XVIII, since that article indicates that the tax treatment would be the same as in Canada.
Further, this is recognized as a loan which you have agreed to repay... so the entire RRSP amount will be taxable in both Canada and the U.S. at a later date when it is actually withdrawn.
You would file form 8833 with your 1040 return, and indicate that you are a "U.S. citizen".
Regards,
Mark T. Serbinski, CA, CPA
Sorry, I missed the Home Buyers Plan reference. Under this case, the withdrawal would not be considered a taxable withdrawal in the U.S. due to Article XVIII, since that article indicates that the tax treatment would be the same as in Canada.
Further, this is recognized as a loan which you have agreed to repay... so the entire RRSP amount will be taxable in both Canada and the U.S. at a later date when it is actually withdrawn.
You would file form 8833 with your 1040 return, and indicate that you are a "U.S. citizen".
Regards,
Mark T. Serbinski, CA, CPA
I hate to put this question at the top again, but I have another question about form 8833.
One of the questions asks the following
<b>List the Internal Revenue Code provision(s) overruled or
modified by the treaty-based return position.</b>
Does anyone know what this provision would be in my situation?.
Thanks Again.
One of the questions asks the following
<b>List the Internal Revenue Code provision(s) overruled or
modified by the treaty-based return position.</b>
Does anyone know what this provision would be in my situation?.
Thanks Again.
Nelson sorry to bug you about this again, I have another question about 8833 question #4
<b>List the provision(s) of the limitation on benefits article (if any) in the treaty that the taxpayer relies on to prevent application of that article</b>
I'm assuming they are refering to Question #2 can Question #4 also be explained like Question #2 If needed?
<b>List the provision(s) of the limitation on benefits article (if any) in the treaty that the taxpayer relies on to prevent application of that article</b>
I'm assuming they are refering to Question #2 can Question #4 also be explained like Question #2 If needed?
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">
<i>Nelson sorry to bug you about this again, I have another question about 8833 question #4
List the provision(s) of the limitation on benefits article (if any) in the treaty that the taxpayer relies on to prevent application of that article
I'm assuming they are refering to Question #2 can Question #4 also be explained like Question #2 If needed? </i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
We're filing 2555 to exclude our foreign earned income, as we meet the Physical Presense Test. I'm looking at the same question that Greg had here, and had no idea how to answer it.
Could anybody tell me what I should put here?
Thanks a lot!
<i>Nelson sorry to bug you about this again, I have another question about 8833 question #4
List the provision(s) of the limitation on benefits article (if any) in the treaty that the taxpayer relies on to prevent application of that article
I'm assuming they are refering to Question #2 can Question #4 also be explained like Question #2 If needed? </i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
We're filing 2555 to exclude our foreign earned income, as we meet the Physical Presense Test. I'm looking at the same question that Greg had here, and had no idea how to answer it.
Could anybody tell me what I should put here?
Thanks a lot!