Elect to not defer tax on RRSP income

canadiandeserter · Post by **canadiandeserter** » Mon Mar 16, 2015 3:30 am

I have tried researching this topic on this forum and elsewhere on the web without much result.

For 2015, Form 8891 is no longer being required; tax deferral of undistributed RRSP income is now automatic without an explicit election.

How would one "elect" to [b]not[/b] defer taxes on RRSP income? i.e. What is the equivalent of not checking box 6c in Form 8891 for 2015?

nelsona · Post by **nelsona** » Mon Mar 16, 2015 7:49 am

If you have never made the election, or MAY now decide not to defer, without any form, simply include income. That is however retroactive to six years, with those consequences.

If yyou have previously filed 8891 and explicitly NOT made theelection, you MUST continue to report income annually. You cannot now make theelection.

I always ask what the reason one wants to not elect? What is your thinking for this?

nelsona · Post by **nelsona** » Mon Mar 16, 2015 7:53 am

But if you previously made the election on 8891, you cannot switch to non-deferral. That has always been the case.

canadiandeserter · Post by **canadiandeserter** » Wed Mar 18, 2015 4:06 am

Thank you for the information! So just including or excluding the RRSP income is enough to "elect" or "unelect" tax deferral... Does that mean one can change the implicit "election" by amending the income on a previous year's return (assuming no explicit election on Form 8891)?

If I expect my income to increase and bump me to higher tax brackets, it would be beneficial to pay up now than later, right? And especially if foreign tax credits are available to offset the tax on the RRSP gains. I guess it also makes accounting easier if RRSP income is taxed every year by the state.

nelsona · Post by **nelsona** » Wed Mar 18, 2015 9:19 am

There are criteria for alowwing you to elect to defer. If you do not meet that criteria, then you must report income annually, or request to back-date.

If you don't wan to elect, which means you never have elected to, then you need to make sure that EVERY year from now on (and for the past 3 years) you report the internal income. Once you include the income in one year, it must be done in all future years

Doing this makes the income passive for FTC purposes (deferring makes the income general when you eventually do take withdrawals.

If you live in US (which is implied because you said the state taxes every year -- which is only california by the way), it is doubtful that you would have sufficient passive CDN-sourced income (that is ALSO taxed highly enough in canada) to offset the US tax on any any RRSP internal gains. Could you descibe a scenrio where you think this would work?

I could see perhaps doing this while in canada, but not if living in US.