RRSP / HBP Help

[Ingtar17]

I noticed you gave someone else some advice regarding the Home Buyer's Plan. I was wondering if you could explain exactly how I handle this. First off, I should mention that I am pursuing my US Citizenship (I was born in the States) and have never submitted any taxes. I need to complete my previous 7 years worth so I have full flexibility how I present all previous years.

I opened an RRSP in 2001 and in 2002 I withdrew ~$5000. I also paid back ~$1500 in the same year, so by the end of 2002 I had a HBP withdrawl of ~$3500CAD. I noticed someone else's post saying they used an 8833 to declare this non-taxable. Is this what I'm supposed to do? What do I say on the form? Is there anything else I have to do?

Then over the years I have paid some back every year but 1 (I made a mistake and had to take it as income). How do I present the amounts I paid back, or do I not worry about it because the 8833 took care of it in 2002 and now I just keep telling them the balance on the 8891 form? Also, how do I account for the accidently non-paid back money from that one year (~$230). It wasn't earned income - it was really a withdrawl from the plan (accidently).

Thanks a bunch.

Geoff

[Ingtar17]

Ok, I managed to find some information on this using the search tool and see that I do need to fill in form 8833. Sorry I didn't do this before my quetsions.

I'm still not exactly sure what to say on the 8833 form - is there an example somewhere?

Also, I was wondering what I should do for years prior to 2004, since it appeears form 8891 does not exist before then? An H&R Block lady told me to just use the current 8891 form anyway, but this doesn't sound right to me.

Geoff

[nelsona]

First off, you are a US citizen. Thus your RRSP growth has always been subject to US taxation, unless you elect otherwise (the current method of making such an election is on Form 8891). You should have been making such an election every year when submitting your 1040. I understand that youare trying to catch up on this now, but keep this in mind. Only the initial contributions you made to your RRSP, and any income that you report as taxable from time to time, can eventaully be withdrawn tax-free.

Don't listen to anything and H&RBLockhead might tell you about anything related to cross-border taxation. It is way over their heads.


Now. Going back to the initial withdrawal. Yes, this withdrawal was tax-free in US since it was tax-free in canada. 8833 is the correct form to use, quoting Article XVIII, para. 1.

However, in a year in which you take an HBP withdrawal, you must then also include any previously elected income as taxable income on your 1040. So any internal income that your RRSP generated in 2001 and 2002 (interest, dividends, cap gains) should be reported on your 2002 1040 as taxable income, since it can't be sheltered.

But from then on, the HBP paybacks, whether you made them or not, are non-events with resperct to IRS. You just fill in the yearly 8891 as directed. You are not making any withdrawls ans thus are delaying US taxation on any internal income

[Ingtar17]

Thanks for the help. Two more questions:

1) What do I do about years prior to 2004 in lieu of the 8891 form that hadn't been created yet?

2) My RRSP Company gives me a statement of final balance, etc., but it does not include whether these are interest, dividends, cap gains, etc. How do I present this?

Geoff

[nelsona]

1. You should make the election for the 1st year you had an RRSP (2001?) and uase this year on all future 8891's

2. You can determine these yourself, just as if the account were not an RRSP. Interest is interest, distributions are dividends and gains/losses from sales and tyrades are cap gains/losses.

[Ingtar17]

I'm sorry - either I am not being clear, or I am not understanding. I'll use a more specific example.

For year 2003 specifically, the 8891 form did not exist yet (created in 2004 I think). For 2003 specifically, do I just fill in the latest 8891 form anyways, or do I fill in something else (what?), or do I fill in nothing? (HBP was in 2002 and initial RRSP purchase was in 2001)

Sorry for so many questions but I really don't understand yet.

Thanks,
Geoff

[nelsona]

Current practice allows to file it back as far as you want (at least 2001)

[Ingtar17]

Please confirm the following (much appreciated):

2001 8891 Form
Line 6a - Check no (ie. never previously elected deferral)
Line 6c - Check box (ie. make election)
Line 8 - Write Balance for Year end in RRSP account

2001 8891 Form
Line 6a - Check yes (ie. previous election in 2001)
Line 6b - write 2001
Line 7a - HBP withdrawl amount
Line 7b - $0 (perhaps with a reference to the 8833 form?)
Line 8 - Plan balance at end of year
Line 9 - Contributions for the year
Line 10 - Breakdown of 2001 plus 2002 gains (interest, dividends, cap gains)

**But line 8 tells me to stop because I checked yes on line 6a!!!! , so how can i fill out line 10?

I must have it wrong. Any help would be great.

Geoff

[nelsona]

I presume the second paragraph is your 2002 8891 not 2001.

Line 7b would not be zero, but would be the income that your RRSP generated upto that point. You would stop at line 8. Line 9 and 10 are for those NOT electing.

[nelsona]

... and line 7b would then be reported on line 16b of your 1040 as taxable.

[Ingtar17]

Great! Thanks for the help.

It does seem wierd though that I would say I am making an election to defer in a year that I am paying tax on all my gains.

[nelsona]

Your election is irrevocable, thus it is made EVERY year, including years when you have no income.

Your other choice is to only elect beginning 2003. You would not file an 8891 for those years for 2001 and 2002 you woulkd add the internal income (as interest, cap gains, and dividends) on your 1040 for those years as you would for any normal investmant account.

Of course, given that you only need to go back 6 years (2002 and up) I'd be tempted to forget about 2001. So whether you elect in 2002 or not, you would still be adding income to your return. the only difference would be whether it was reported as 16b income (if you elect), or whether it was reported as ordinary cap gains, dividends and interest (if you do NOT elect).

[Ingtar17]

Actually, I wouldn't mind forgetting about 2001 because there is some non RRSP capital gains on my 2001 Canadian return that I can't account for (must have lost the details).

So if I did this, I assume I could elect in 2002, but still put all the gains from 2001 and 2002 on line 7b instead of not electing and breaking down the gains in 2002.

I'd love to find a way to avoid 2001, but also not ever break down the gains since I also lost all the detailed data from 2001 and 2002 for my RRSP account.

Geoff

[Ingtar17]

To calculate the non-taxable portion, I did the following:

Converted 2001 contributions to USD using average exchange rate for 2001
Converted 2002 contributions to USD using average exchange rate for 2002
Added two USD amounts and used this as the non-taxable portion. The rest (except HBP withdrawl) would be taxable.

Correct?

(Thank you so much - It's nice to finally find someone who knows what they are talking about. I want my $40 back from the H&R Blockheads)

[nelsona]

Not sure what you mean by "the rest (except HBP withdrawal) would be taxable". Your HBP is a non-event in determining the eventual taxation of your RRSP when you do beging withdrawing from it.

Your non-taxable portion will be your contributions plus any income you reported as taxable. Your HBP was not reported as taxable, so doesn't reduce your eventaul taxable portion.