How to sever ties to Canada for tax purposes

[kobe7146]

Will meet days requirement of USA but I will have a spouse in Canada (cannot take her with me as she needs to complete her citizenship requirements). I own no property. Is there any way I can be considered a non-tax resident of Canada?

[nelsona]

If you do not regularly visit her in Canada, this should be sufficient.

You should also be making as many "ties" in US as possible, including driver's license, car registration, etc. Review the NR73 document which list ties, and make sure as few of them are in Canada, and as many of them are in US.

This would make you a deemed (or treaty) non-resident, which is treated like a non-resident (emigrant), dating back to when you left for work in US.

[terry100589]

I want to severe ties in Canada as I am 75 and have no plans to move back to Canada. I am now a US citizen but have a RRIF in Canada. I want to move all this money before I die and the have my wife burdened with excessive
Death tax in Canada.I also want to avoid the 25% withholding tax but am ok with the 15% withholding tax that I understand only applies on the minimum RRIF withdrawal requirement. My RRIF is held by Scotia Wealth Management. Any tips on how I can do this.

[terry100589]

My main purpose is to get my RRIF money into my US account and avoid excessive taxes. I moved my entire 1 year minimum this month and after the15% withholding and dollar conversion I received 58% in US $. Will be much worse at 25% withholding tax.

[terry100589]

My main purpose is to get my RRIF money into my US account and avoid excessive taxes. I moved my entire 1 year minimum this month and after the15% withholding and dollar conversion I received 58% in US $. Will be much worse at 25% withholding tax.

[nelsona]

Unfortunately for you, your RRIF is your Cdn tie. And taking it in one lump sum at this point will make it 25% taxable as you say. That is not effectively reducing taxes. The 15% tax is the best you can do, unles you are making very little income elsewhere. There is no way to transfer these monies, without incurring the 25% NR tax.

Btw, your spouse would not be left with Cdn "death taxes", since when you bequeath the RRIF to her, it simply becomes her RRIF, no tax. Where had you heard otherwise?

[nelsona]

You are allowed to withdraw TWICE the minimum withdrawal and still pay only 15% NR tax.

[terry100589]

Nelsona- I now have 3 interpretations:
1. Yours. 15% withholding tax at twice the minimum RRIF minimum distribution. Good for me.
2. Scotia Wealth Management claim15% up to the annual
Minimum distribution then 25% after I reach that plateau
3. Revenue Canada tax treaty department today interpreted the 15% applies on all periodic distributions so would apply for the entire year.Best option for me.
More I dig into this the more confused I get.
My plan is to get Scotia tax experts to explain how they come up with their taxing which is the worst scenario for me. Then put in a claim if not satisfied Scotia response Revenue Canada which is what their tax treaty folks suggested. Cross border taxing needs to be easier as I bounced around 8 people at Revenue Canada today over 3 hours and very few of these people knew the answer but fully understood what my problem was.Will let you know result.

[nelsona]

CRA is slightly ambiguous. They mean that any number of withdrawals during the year, that TOTAL less than the twice minimum will be taxed at 15%. Overages would still be taxed at 25%. Always be wary of CRA telephlunkie explanations.

And management firms almost always get the withholding wrong, but you can correct this at year end.

But, be assured, you can take twice the minimum every year and the final tax will be 15%. Which at your age would be the best practice.

[terry100589]

Nelson a
It sounds like you are suggesting I just request 2 times the minimum required distribution and it will all settle out when I do my 2025 taxes in the US next year as Scotia plans to tax me at 25% withholding. Would love to know where this info is so I can persuade Scotia not to tax me at 25%

[terry100589]

Nelson- as I have 3 differing opinions on withholding taxes on my RRIF I need to ask if you work for Serbinski Accounting Firms and what your title/role is. Thanks

[nelsona]

The Cdn taxation of RRIF withdrawals by US residents has been covered here many times, and many users of this forum, including my self have found their experience to be similar.

Section 5 of the ITCIA, which CRA uses to interpret tax treaties, defines what a "periodic pension payment to be. It is not based on the frequency or number of withdrawals made during the year, but whether the accumulated amount withdrawn is meets or exceeds the definition forum in the ITCIA,
which is - simply - the greater of 10% of the beginning of year value, or twice the required distribution, which is determined by age.

https://laws.justice.gc.ca/eng/acts/I-4/page-1.html

So, for a 75-yr old, the minimum distribution is 5.82%, twice that would be 11.64%. For example, if your RRIF was valued at $100,000 at the begining of the year, you could take out, one one lump or a series of withdrawals $11,640 and expect to be withheld at 15%. Any withdrawals made that y=would put you over that amount, would be withheld at 25%.

example 1: if you made 11 x $1000 withdrawals, you would be withheld %15. If however you made a 12th withdrawal of $1000, that $1000 would be withheld at 25%, as would any further withdrawals that tax year.

example 2: if you instead decided to make one $12,000 withdrawal, the entire amount would be taxed at 25%, because your withdrawal failed to stay below the $11,640 for the year.

That is how it is SUPPOSED to be withheld. However, many managers, as you seem to be encountering with yours, are not familiar with the definition from the ITCIA, and withhold incorrectly, particularly after the first minimum (ie. 5.82%) has been reached, One has to either re-educate them, or if they are unwilling, you can file an NR7-R form to recover any incorrectly withheld tax. Hopefully you will find someone at Scotia that has dealt with US residents and understands the ITCIA definitions and procedures. CRA certainly will use the ITCIA to determine the correct final tax.

For the US you would continue reporting the RRIF income, and the Cdn tax paid, as a credit on Form 1116, as you probably have been doing for the past few years.

If you wish to collapse your RRIF in one year, for whatever reason, you surely can, and pay the 25% tax and be done with it (I would only suggest that you do it two withdrawals: one of 10%, taxed at 15%, and the second, the remainder taxed at 25%. But you came here looking for the best TAX strategy, and fearing that thing would get complicated at your death.

The systematic withdrawal of approx 10% of your RRIF each year is the most tax efficient way. And as I have explained, your spouse would simply take over your RRIF and follow the same course.

From my signature line you can see that I a do not claim to be a professional, and have no affiliation with Serbinski or any other firm.

[Cdninga]

I too have a RRIF in Canada which is held by Scotia Wealth Management in Montreal. I have been taking out 10% of my RRIF every year since 2020 and Scotia has been deducting the correct 15% NR withholding for the CRA. I suggest that you get your Scotia advisor to raise the issue up the chain of command to get your issue resolved.

[ND]

'Always be wary of CRA telephlunkie explanations'