I guessed this from reading other posts, but didn't find one that directly addressed it.
I am a US citizen in the process of becoming a Canadian resident. I have a substantial sized IRA (including my 401k's rolled over). The capital gains / interest in this account are not US taxable until I start withdrawing from it. This is to confirm, by the Canada/US tax treaty, that the capital gains / interest are also not Canadian taxable until I withdraw from it? Also from reading the other posts, there doesn't seem to be any particular benefit of rolling this into a RRSP.
Thanks!
No Canadian tax on IRA earnings?
Moderator: Mark T Serbinski CA CPA
Your are correct that the yearly earning in your IRA/401(k)/Pension are not taxable until you begin withdrawing them. There is nothing to do or report to CRA (Cdn IRS) in the meantime.
When you withdraw, the entire withdrawal will be taxed in US and canada, with Canada giving Credit for the US tax.
I hasten to point out that this is NOT the case with a Roth IRA, as these are not protected by treaty (yet) in Canada. A roth account is really just an investment account in the eyes of CRA, so you would be liable for any income it generates year-by-year. There is a specific relief for the yearly taxation you would incur (CRA will basically let you defer the tax on the earnings until you start withdrawing from the Roth -- this may eventually change -- but you have to ask them personally).
This would also come into play if you re-characterized an IRA into a Roth. CRA has specific rules on how you would be taxed in the year of such re-charaterization.
No. There is no advantage to patriating your IRA to canada. Besides, you will already have the reporting burden of the RRSP to IRS for any RRSP you will now be funding, so just leave your IRA
<i>nelsona non grata</i>
When you withdraw, the entire withdrawal will be taxed in US and canada, with Canada giving Credit for the US tax.
I hasten to point out that this is NOT the case with a Roth IRA, as these are not protected by treaty (yet) in Canada. A roth account is really just an investment account in the eyes of CRA, so you would be liable for any income it generates year-by-year. There is a specific relief for the yearly taxation you would incur (CRA will basically let you defer the tax on the earnings until you start withdrawing from the Roth -- this may eventually change -- but you have to ask them personally).
This would also come into play if you re-characterized an IRA into a Roth. CRA has specific rules on how you would be taxed in the year of such re-charaterization.
No. There is no advantage to patriating your IRA to canada. Besides, you will already have the reporting burden of the RRSP to IRS for any RRSP you will now be funding, so just leave your IRA
<i>nelsona non grata</i>
Yup.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by dsze</i>
And a followup question ... interest from municipal (US) bonds that are not taxable in the US ... I assume that they ARE taxable in Canada?
Thanks in advance
(Mostly trying to figure out how Canadian and US taxes are going to work differently on my investments)
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Regards,
Carson Hirner
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by dsze</i>
And a followup question ... interest from municipal (US) bonds that are not taxable in the US ... I assume that they ARE taxable in Canada?
Thanks in advance
(Mostly trying to figure out how Canadian and US taxes are going to work differently on my investments)
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Regards,
Carson Hirner
Both.
You pay US tax first (whichever you way you choose, depending on your situation: flat withholding or 1040NR).
Then report the entire gross withdrawal on your Cdn return, using the US tax (including any early withdrawal penalty tax) as a credit in the foreign tax credit calculation, for fed and prov.
There is no difference as to the Cdn treatment of IRA withdrawals that are subject to penalty or not, except that withdrawls that are systematic periodic withdrawals (that would generally be when you retire and begin 'drawing' on your IRA) would only be taxed 15% by US, by treaty Article XVIII.2.
<i>nelsona non grata... and non pro</i>
You pay US tax first (whichever you way you choose, depending on your situation: flat withholding or 1040NR).
Then report the entire gross withdrawal on your Cdn return, using the US tax (including any early withdrawal penalty tax) as a credit in the foreign tax credit calculation, for fed and prov.
There is no difference as to the Cdn treatment of IRA withdrawals that are subject to penalty or not, except that withdrawls that are systematic periodic withdrawals (that would generally be when you retire and begin 'drawing' on your IRA) would only be taxed 15% by US, by treaty Article XVIII.2.
<i>nelsona non grata... and non pro</i>
One reason I am thinking of transferring my husband's IRA to Canada when we land is that the US dollar depreciation may more than pay for the transfer since his age makes negates both penalties and the possibility of starting an RRSP. (Even though he is still working.)
It is very hard to project these currency factors. However, there are many factors that seem to point to several years of dollar weakness. In addition, we will always have significant exposure to the US dollar through my husband's work, pension plan, and Social Security.
I know that I need to factor in transfer costs and account maintenance fees in Canada. (Which I don't know.)
Please post any thoughts from this perspective.
Please respond with thoughts
sharon
It is very hard to project these currency factors. However, there are many factors that seem to point to several years of dollar weakness. In addition, we will always have significant exposure to the US dollar through my husband's work, pension plan, and Social Security.
I know that I need to factor in transfer costs and account maintenance fees in Canada. (Which I don't know.)
Please post any thoughts from this perspective.
Please respond with thoughts
sharon
slmasker, the solution to your IRA/US currency woes is to invest your existing funds in vehicles that are foreign (including canada if you wish). Very little of my 401(k)/IRA is in US funds.
One does not have to repatriate the accounts to Canada to do this, and in fact it is likely too late to recover anything thru Cdn currency, as the C$ has already gained 25% vs. US, so you would be investing in non-Cdn funds at this point as well.
You need significant Cdn-source income in each year that you wish to repatriate your IRA to Canada. (eg. if you want to repatriate C$100K of IRA, you need about C$80K of other Cdn-sourced income).
It simply isn't worth it.
And, as I said before, there is absolutely nothing stopping him funding YOUR RRSP until YOU reach 69 years old, this would still give him a full deduction.
<i>nelsona non grata... and non pro</i>
One does not have to repatriate the accounts to Canada to do this, and in fact it is likely too late to recover anything thru Cdn currency, as the C$ has already gained 25% vs. US, so you would be investing in non-Cdn funds at this point as well.
You need significant Cdn-source income in each year that you wish to repatriate your IRA to Canada. (eg. if you want to repatriate C$100K of IRA, you need about C$80K of other Cdn-sourced income).
It simply isn't worth it.
And, as I said before, there is absolutely nothing stopping him funding YOUR RRSP until YOU reach 69 years old, this would still give him a full deduction.
<i>nelsona non grata... and non pro</i>
I am already in Canadian stocks (income trusts and regular stocks) that I bought using US otc symbols online at my brokerage firms and I have foreign currency CDs (nz, aud, gbp) through Everbank. But when we have to take distributions in two years the dollars will be converted back to US prior to zooming north.
You seem certain that these monies should remain in the US so I defer to your judgment. However, I would not want to be holding a bunch of US stocks, or bonds, or mutuals for the next few years--here, or there. If I can get Everbank to let me trade while living in Canada, that will work, although their currency conversion fees are steep.
I am working on being able to fund my own RRSP with a combination of free-lance work, rental properties, and tutoring. When, or if, I see the income being sufficient to buffer a transfer I will revisit the decision.
Thanks again, Sharon Masker
sharon
You seem certain that these monies should remain in the US so I defer to your judgment. However, I would not want to be holding a bunch of US stocks, or bonds, or mutuals for the next few years--here, or there. If I can get Everbank to let me trade while living in Canada, that will work, although their currency conversion fees are steep.
I am working on being able to fund my own RRSP with a combination of free-lance work, rental properties, and tutoring. When, or if, I see the income being sufficient to buffer a transfer I will revisit the decision.
Thanks again, Sharon Masker
sharon
Holding US mutual funds that invest in foreign markets is NOT holding US currency. Why do you think 'foreign' mutual funds have perfomed so well in the past 2 years? Besause they are not held in US dollars (their value is merely tracked in USD for buying and selling purposes). So when you do start taking distributions, your funds will be in US dollars for onlt the time it takes to cash the check at a Cdn bank.
When you cash your everwood funds, they will hnd you a check in USD, too, so I don't see any difference.
If you are really worried about dealing in a strong currency, Canada is not the place either. The Cdn dollar has only fared well against the US dollar. Against most other currencies, it is still poor.
Didn't you say it was your <i>husband's IRA</i>. If it is, HE will have to have the Cdn income (not you, since there is no joint filing in Canada). <b>He</b> will require the <b>Cdn</b> income in order to be able to use the tax credits <b>he</b> creates. Canada does not allow you to use his credits.
Judging from what you've said about his income situation, I doubt that he will ever have sufficient CDn-source income to make the transfer (CRA will only accept transfers of lump-sums, not normal payouts). That is he would not be able to take a nornmal regular payout and put it into RRSP (and then use credit). It must be a significant anmount each transfer.
Again, there is no tax advantage of transfer (absolutely none -- there cannot be). There is little currency advantage, especially if you invest in foreign vehicles. The ONLY time one should consider transfer is if (a) they are having trouble finding a will trading firm, (B) they are 20 years from taking withdrawals, and (C) they have enough income in Canada to make the transfer in 2 or 3 years maximum.
<i>nelsona non grata... and non pro</i>
When you cash your everwood funds, they will hnd you a check in USD, too, so I don't see any difference.
If you are really worried about dealing in a strong currency, Canada is not the place either. The Cdn dollar has only fared well against the US dollar. Against most other currencies, it is still poor.
Didn't you say it was your <i>husband's IRA</i>. If it is, HE will have to have the Cdn income (not you, since there is no joint filing in Canada). <b>He</b> will require the <b>Cdn</b> income in order to be able to use the tax credits <b>he</b> creates. Canada does not allow you to use his credits.
Judging from what you've said about his income situation, I doubt that he will ever have sufficient CDn-source income to make the transfer (CRA will only accept transfers of lump-sums, not normal payouts). That is he would not be able to take a nornmal regular payout and put it into RRSP (and then use credit). It must be a significant anmount each transfer.
Again, there is no tax advantage of transfer (absolutely none -- there cannot be). There is little currency advantage, especially if you invest in foreign vehicles. The ONLY time one should consider transfer is if (a) they are having trouble finding a will trading firm, (B) they are 20 years from taking withdrawals, and (C) they have enough income in Canada to make the transfer in 2 or 3 years maximum.
<i>nelsona non grata... and non pro</i>
Thanks again, I think. I see you are impatient with my apparent lack of comprehension. I am working on it.
I hope you will explain the BHP plan you mentioned, in what circumstance it works and how the funds are invested.
Sorry I wasn't clear on our situation, Nelsona. Your advice about my husband's IRA is taken--it will remain in the US. However, I also have traditional IRAs and Roths, so that is what I will work on transferring.
I am aware of the relative currency valuations, note my CDs are in other resource countries and GBP, not Canadian.
I do not hold mutural funds per se--however, I have held CEFs since they charge less for expenses , on average.
Everbank not Everwood. This is a good reference for others that may want to hold non-US or CA CDs. Wish their conversion charge was less but they seem to be the only game in town.
sharon
I hope you will explain the BHP plan you mentioned, in what circumstance it works and how the funds are invested.
Sorry I wasn't clear on our situation, Nelsona. Your advice about my husband's IRA is taken--it will remain in the US. However, I also have traditional IRAs and Roths, so that is what I will work on transferring.
I am aware of the relative currency valuations, note my CDs are in other resource countries and GBP, not Canadian.
I do not hold mutural funds per se--however, I have held CEFs since they charge less for expenses , on average.
Everbank not Everwood. This is a good reference for others that may want to hold non-US or CA CDs. Wish their conversion charge was less but they seem to be the only game in town.
sharon
I do not know what a BHP plan is.
And a search of this thread yields nothing called BHP or anything remotely close.
Roths can't be transferred. Either cash them out shortly before/after leaving US, or begin paying Cdn tax on their yearly income.
As to funding your own RRSP, if your husband makes more money than you, he should be funding a sppousal RRSP in your name, so that he gets a tax deduction -- again, be aware that there is no joint filing in Canada, and strict attribution rules to defeat income splitting. A spousal RRSP is the single best/simplest way of transferring income from high-earner spouse to low-earner spouse.
A persom making less than about $27K in income should NOT be contributing to an RRSP, as the tax deduction is almost negligible.
I am not impatient with you, I have seen your case many times, and am able to judge by your responses that you have strongly entrenched misconceptions about (a) currency (b) transferability of retirement funds and (c) the notion of joint/separate returns.
You may be more familiar with these things than you let on, but I have only your responses to go on.
<i>nelsona non grata... and non pro</i>
And a search of this thread yields nothing called BHP or anything remotely close.
Roths can't be transferred. Either cash them out shortly before/after leaving US, or begin paying Cdn tax on their yearly income.
As to funding your own RRSP, if your husband makes more money than you, he should be funding a sppousal RRSP in your name, so that he gets a tax deduction -- again, be aware that there is no joint filing in Canada, and strict attribution rules to defeat income splitting. A spousal RRSP is the single best/simplest way of transferring income from high-earner spouse to low-earner spouse.
A persom making less than about $27K in income should NOT be contributing to an RRSP, as the tax deduction is almost negligible.
I am not impatient with you, I have seen your case many times, and am able to judge by your responses that you have strongly entrenched misconceptions about (a) currency (b) transferability of retirement funds and (c) the notion of joint/separate returns.
You may be more familiar with these things than you let on, but I have only your responses to go on.
<i>nelsona non grata... and non pro</i>