It has been to your advantage NOT to defer in the past, since, as you say, the income (true income) that your RRSP was generating, was undoubtedly below your standard deduction.
Now that you have a larger sum, it may indeed be to your advantage to no lonfger report the income yearly, but take the deferral. In any event, you have now started to defer, and must continue to do so.
For your oen records, you will have to come up with the total contributions you have made to your RRSP overe the years. You need to track this figure (since this was an undeductible contribution in the eyes of IRS) so that when you start withdrawing from your RRSP, you will be able to reduce the taxable ammount of your withdrawal by this ammount.
The phantom RRSP income you have already reported on 1040s would also be added to this "initial investment" ammount, since you have already subjected it to US taxation (even if that tax was zero).
Roughly, if you have $200K in your RRSP and you contributed (and/or previously declared) $100K, if you take out $10K, only $5K will be taxable in US.
There are a couple of ways to claculate the taxable portion, and I'll leave that asside for now, but you need to know your contributions and your previously repoirted ammounts as a minimum for the future.
Note that your RRSP withdrawls, when you do fianlly take some, will not be entitled to the 2555 exclusion like your wages are (they aren't considered earned income), so you quite likely will have US tax to pay on these.
Try to compile as accurate a record of this as you can -- you WILL need it at some point, or you could pay a lot of unnecessary tax.
You need to keep track, and protect, the records of your RRSP, as carefully as you would any other reciept that you use as a tax deduction.
<i>nelsona non grata... and non pro</i>
Form 8891 questions here please!!!!
Moderator: Mark T Serbinski CA CPA
Tania, your analysis is ALMOST correct about 16b. For interest bering accounts , the cost basis and the current value are identical. Book value and market value are only different in investments which have a capital component (stocks and mutual funds, basically).
But to accurately determine your "gain, you have to convert both the initial ammount and the final ammount into US dollars AT THAT TIME.
So you need to establish the value in US dollars when you arrived, and the value in US dollars when you sold. Proably with the change in exchage rates, your "US" gain was more than $300.
One thing to check though is what date you became, or chose to become a US tax resident. If you filed full year 1040 in your first year in US, then you need to use the value at Dec 31 of previous year, not the day you left Canada.
As to what to do with the Cdn tax, you ALWAYS report ALL of it, and let the 1116 calculation limit it to its maximum, which will probably be about $30. The remainder of the Cdn tax would be carried forward for future use (likely useless if you have no other income sources in Canada).
A better alternative might be to report the Cdn tax (again, all of it) as a foreign tax deduction on Sched A. This has no limit, but only benefits you if you itemize your deductions.
<i>nelsona non grata... and non pro</i>
But to accurately determine your "gain, you have to convert both the initial ammount and the final ammount into US dollars AT THAT TIME.
So you need to establish the value in US dollars when you arrived, and the value in US dollars when you sold. Proably with the change in exchage rates, your "US" gain was more than $300.
One thing to check though is what date you became, or chose to become a US tax resident. If you filed full year 1040 in your first year in US, then you need to use the value at Dec 31 of previous year, not the day you left Canada.
As to what to do with the Cdn tax, you ALWAYS report ALL of it, and let the 1116 calculation limit it to its maximum, which will probably be about $30. The remainder of the Cdn tax would be carried forward for future use (likely useless if you have no other income sources in Canada).
A better alternative might be to report the Cdn tax (again, all of it) as a foreign tax deduction on Sched A. This has no limit, but only benefits you if you itemize your deductions.
<i>nelsona non grata... and non pro</i>
Thanks for the clarification about having to defer once I started. I wasn't sure.
Am I understanding you correctly?
-I don't need to refile for previous years, even though I did them wrong--BUT only if the actual income was less than the personal exemption amounts for myself + my spouse?
-I have to find out what the actual income (i.e. as opposed to what was declared on the 1040) was in all the years in order to calculate accurately the amount of income exempt from tax when I start receiving revenue from the RRSP plan?
-If I were to withdraw a contribution from the RRSP (say the income the plan generates isn't enough by the time I'm 75 and I have to start withdrawing capital), I would have to pay US tax on that amount? But since I would have to pay Canadian taxes on the contribution withdrawn, presumably I still wouldn't have any US tax liability?
-What about my kids? They contribute to RRSPs and their contributions plus earnings are way below the exemptions. Is there any way they declare their contributions?
I am so grateful to you for this help.
Am I understanding you correctly?
-I don't need to refile for previous years, even though I did them wrong--BUT only if the actual income was less than the personal exemption amounts for myself + my spouse?
-I have to find out what the actual income (i.e. as opposed to what was declared on the 1040) was in all the years in order to calculate accurately the amount of income exempt from tax when I start receiving revenue from the RRSP plan?
-If I were to withdraw a contribution from the RRSP (say the income the plan generates isn't enough by the time I'm 75 and I have to start withdrawing capital), I would have to pay US tax on that amount? But since I would have to pay Canadian taxes on the contribution withdrawn, presumably I still wouldn't have any US tax liability?
-What about my kids? They contribute to RRSPs and their contributions plus earnings are way below the exemptions. Is there any way they declare their contributions?
I am so grateful to you for this help.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">-I don't need to refile for previous years, even though I did them wrong--BUT only if the actual income was less than the personal exemption amounts for myself + my spouse? <hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Not both exemptions, just yours. To get both exemptions you would need to file jointly, which would bring in his RRSP into all this mess. So it's your exemption only and the standard deduction for one married filing separately.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">-If I were to withdraw a contribution from the RRSP (say the income the plan generates isn't enough by the time I'm 75 and I have to start withdrawing capital), I would have to pay US tax on that amount? But since I would have to pay Canadian taxes on the contribution withdrawn, presumably I still wouldn't have any US tax liability?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
It would probably be more useful for you to consider each RRSP withdrawl, as a 'mix' of capital and profits. So, at 69, when you take your first $10,000, $3000 or 4000 will be taxable, and so on, based on the capital vs. total book value equation. This way, you will report a little income each year, and the 2 taxes should mesh nicely.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">-What about my kids? They contribute to RRSPs and their contributions plus earnings are way below the exemptions. Is there any way they declare their contributions?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Since your kids are US citizens they should be doing the same as you, except they should probably avoid electing to defer until thier yearly income in their RRSPs becomes high.
Why do you use the phrase "their contributions plus earnings are way below the exemptions". Contributions to RRSPs and earnings are never added together, anywhere. Only their earnings are reportable, with no deduction for RRSP contributions.
Contributions to RRSPs are a non-event to the IRS, except when one finally makes a withdrawal. The taxpayer tracks these (or indicates them on 8891) for use at a later date. They are not considered income. They are not considered a deduction either.
<i>nelsona non grata... and non pro</i>
Not both exemptions, just yours. To get both exemptions you would need to file jointly, which would bring in his RRSP into all this mess. So it's your exemption only and the standard deduction for one married filing separately.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">-If I were to withdraw a contribution from the RRSP (say the income the plan generates isn't enough by the time I'm 75 and I have to start withdrawing capital), I would have to pay US tax on that amount? But since I would have to pay Canadian taxes on the contribution withdrawn, presumably I still wouldn't have any US tax liability?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
It would probably be more useful for you to consider each RRSP withdrawl, as a 'mix' of capital and profits. So, at 69, when you take your first $10,000, $3000 or 4000 will be taxable, and so on, based on the capital vs. total book value equation. This way, you will report a little income each year, and the 2 taxes should mesh nicely.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">-What about my kids? They contribute to RRSPs and their contributions plus earnings are way below the exemptions. Is there any way they declare their contributions?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Since your kids are US citizens they should be doing the same as you, except they should probably avoid electing to defer until thier yearly income in their RRSPs becomes high.
Why do you use the phrase "their contributions plus earnings are way below the exemptions". Contributions to RRSPs and earnings are never added together, anywhere. Only their earnings are reportable, with no deduction for RRSP contributions.
Contributions to RRSPs are a non-event to the IRS, except when one finally makes a withdrawal. The taxpayer tracks these (or indicates them on 8891) for use at a later date. They are not considered income. They are not considered a deduction either.
<i>nelsona non grata... and non pro</i>
Hi, nelsona.
Thanks for clarification about the contributions--but I hope somebody changes the treaty about that. If the contribution plus the earnings total less than the personal deduction, I don't see why it wouldn't be declare-able. It seems so simple.
About the deduction for a spouse. I put a statement to the effect that my spouse is an NRA who had no US income and is not filing a return, and cannot be claimed as a dependent on another person's return. I put a statement to that effect on every form I filed, per the instructions of the IRS rep who came here way back when. (I even wrote down her name.)
Likewise, I claim an exemption for myself, because I'm not declared as a dependent on anyone else's return.
So I have the standard deduction, plus an exemption for myself and for my spouse. For 2004 this will be 4850 + 6200 ( i.e. 2 x 3100), for a total of 11,050.
She even dictated the sentence to me so I'd be sure to explain it in proper language to the IRS person checking the returns. She was so nice.
Thanks for clarification about the contributions--but I hope somebody changes the treaty about that. If the contribution plus the earnings total less than the personal deduction, I don't see why it wouldn't be declare-able. It seems so simple.
About the deduction for a spouse. I put a statement to the effect that my spouse is an NRA who had no US income and is not filing a return, and cannot be claimed as a dependent on another person's return. I put a statement to that effect on every form I filed, per the instructions of the IRS rep who came here way back when. (I even wrote down her name.)
Likewise, I claim an exemption for myself, because I'm not declared as a dependent on anyone else's return.
So I have the standard deduction, plus an exemption for myself and for my spouse. For 2004 this will be 4850 + 6200 ( i.e. 2 x 3100), for a total of 11,050.
She even dictated the sentence to me so I'd be sure to explain it in proper language to the IRS person checking the returns. She was so nice.
I'll keep an open mind on this:
From IRS Publication 501 (2004 edition):
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">If you file a separate return, you can claim the exemption for your spouse only if <b>your spouse had no gross income</b>, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse's exemption. This is also true if your spouse is a nonresident alien. <hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
The bold is mine. All 3 conditions need to be met. He is not filing a return (ok), and was not the dependant of another taxapayer (ok), but he most certainly had gross income (you yourself said so). The requirement applies to non-resident spouses (like yours).
That is how I read this papagraph.
<b>However</b>, Elsewhere, in Pub 519, for example, it talks of "no gross income for <u>US tax purposes</u>".
I'm unsure if this means strictly means no US-source income, or if this means no income which would be considered gross income by IRS, regardless of source.
If your IRS lasdy said no US-source income, and you have had no problems, so be it.
<i>nelsona non grata... and non pro</i>
... and I still don't see why you would want to "declare RRSP contributions". They have nothing to do with earnings. What you are asking doesn't make sense.
From IRS Publication 501 (2004 edition):
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">If you file a separate return, you can claim the exemption for your spouse only if <b>your spouse had no gross income</b>, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse's exemption. This is also true if your spouse is a nonresident alien. <hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
The bold is mine. All 3 conditions need to be met. He is not filing a return (ok), and was not the dependant of another taxapayer (ok), but he most certainly had gross income (you yourself said so). The requirement applies to non-resident spouses (like yours).
That is how I read this papagraph.
<b>However</b>, Elsewhere, in Pub 519, for example, it talks of "no gross income for <u>US tax purposes</u>".
I'm unsure if this means strictly means no US-source income, or if this means no income which would be considered gross income by IRS, regardless of source.
If your IRS lasdy said no US-source income, and you have had no problems, so be it.
<i>nelsona non grata... and non pro</i>
... and I still don't see why you would want to "declare RRSP contributions". They have nothing to do with earnings. What you are asking doesn't make sense.
Nelson, is this still OK?
I filed dual status 1040NR from Jan - May 31st and 1040 for June 1st to Dec 31st for the year 2002 with residency date starting June 1st 2002. According to what you explained to me my book value is $8200 converted to US$ and then income reporting on 16b would be $320 converted to US$ and reporting on 1116 $2130 converting to US$.
What do I do with the state tax? I never reported anything about RRSPs to the state since I became a state resident?
I filed dual status 1040NR from Jan - May 31st and 1040 for June 1st to Dec 31st for the year 2002 with residency date starting June 1st 2002. According to what you explained to me my book value is $8200 converted to US$ and then income reporting on 16b would be $320 converted to US$ and reporting on 1116 $2130 converting to US$.
What do I do with the state tax? I never reported anything about RRSPs to the state since I became a state resident?
You misunderstood exactly what I wanted you to get from my post.
To accurately determine your net gain since you arrived in US you MUST take the value of your account in US dollars on <u>June 1 2002 </u> (valued at that time), and subtract that from the your final withdrawal (in US dollars) on the <u>day you withdrew it</u>.
In otherwords you need to make 2 currency conversions. You need to determine what the US$ equivalence was for C$8000 in <u>June 2002</u>, and subtract the value in US$ of C$8320 <u>on the day you sold </u> up. The result will go on 16b.
16a will be the $8320 in USD and the Cdn tax will be $2130 in USD, both based on the rate in effect the day you sold your RRSP.
Please check the results of your return by doing both different ways: the credit (1116) or the deduction (Sched a). I think you will find, if you already itemize, that the deduction will be most beneficial.
The historical exzcahge rates are available at the Bank of Canada website.
The manner in which you filed does allow you to choose June 1 2002 as your evaluation date.
<i>nelsona non grata... and non pro</i>
To accurately determine your net gain since you arrived in US you MUST take the value of your account in US dollars on <u>June 1 2002 </u> (valued at that time), and subtract that from the your final withdrawal (in US dollars) on the <u>day you withdrew it</u>.
In otherwords you need to make 2 currency conversions. You need to determine what the US$ equivalence was for C$8000 in <u>June 2002</u>, and subtract the value in US$ of C$8320 <u>on the day you sold </u> up. The result will go on 16b.
16a will be the $8320 in USD and the Cdn tax will be $2130 in USD, both based on the rate in effect the day you sold your RRSP.
Please check the results of your return by doing both different ways: the credit (1116) or the deduction (Sched a). I think you will find, if you already itemize, that the deduction will be most beneficial.
The historical exzcahge rates are available at the Bank of Canada website.
The manner in which you filed does allow you to choose June 1 2002 as your evaluation date.
<i>nelsona non grata... and non pro</i>
Would you know if a US citizen/Canadian resident can use form 8891 to report an RESP? I am guessing not from what I have read. I only started one last December for my son, not knowing what I was in for as far as US filing requirements.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>
No changes from the draft copy
http://www.irs.gov/pub/irs-pdf/f8891.pdf
IRS has recently announced a new Form 8891 to report/defer yearly RRSP income.
Its release date has been pushed back several times, but <b>it will be required for the 2004 tax return.</b>
Its aim is to consolidate all the Revenue Procedures and Notices that have appeared over the last 15 years.
Watch this space for further announcements.
<i>nelsona non grata</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>
No changes from the draft copy
http://www.irs.gov/pub/irs-pdf/f8891.pdf
IRS has recently announced a new Form 8891 to report/defer yearly RRSP income.
Its release date has been pushed back several times, but <b>it will be required for the 2004 tax return.</b>
Its aim is to consolidate all the Revenue Procedures and Notices that have appeared over the last 15 years.
Watch this space for further announcements.
<i>nelsona non grata</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">