Expatriation & RRSPs

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exPenn
Posts: 106
Joined: Tue Aug 20, 2013 3:06 pm
Location: GTA

Expatriation & RRSPs

Post by exPenn »

My wife is (or was) a dual US/Canadian citizen, who has lived in Canada for 26 years. She renounced her US citizenship last Sept., so we expect to file her last US return (a full year 1040) in June, 2014. Every year she filed an 8891 to DEFER (but not eliminate) US taxes on the growth within her RRSPs, and we expect we will file an 8891 with her final 1040. If she had continued to be a US citizen, she would eventually have to convert to an RRIF and begin withdrawals, which would then become subject to US tax. However, there seems to be no provision for taxing this deferred income when you expatriate.
She does have to file a form 8854 with her final return, listing all her assets (including her RRSP's) to calculate her net worth. If that were > $2M, she would be covered under Section 877A, and would be subject to US tax on capital gains on all assets (including RRSPs) as though they were sold the day before expatriation. Again, however, if you are not a covered individual, that does not apply.
It would appear that the obligation to pay these DEFERRED taxes simply evaporates on expatriation, or am I missing something?
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

That is correct. You didn't defer the tax, you deferred the income. There are many instances, mostly related to estate tax, where deffered income ends up in the estate, and well below the estate tax threshold, just as in this case the expat "wealth" is below the taxation level.

This would be the same for a Cdn citizen living in US for 1,2, 10, 40 years, having deferred the income in his RRSP, and then moving back to Canada: no US tax would be incurred simply on the deferral.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Diskdoctor
Posts: 75
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor »

What would happen to those RRSPs if the taxpayer were to return to the U.S. and again be required to file U.S. taxes? Would you treat it as if tax had continued to be deferred in the interim or would you start fresh?
exPenn
Posts: 106
Joined: Tue Aug 20, 2013 3:06 pm
Location: GTA

Post by exPenn »

To return to the US as anything other than a visitor would require getting a green card, which I imagine is quite difficult after renouncing your US citizenship, so this may be an academic question. However, I imagine you would start fresh, and begin again to defer growth within your RRSP, just like someone moving to the US for the first time.
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