Departure Return RRSP and 8891

[Greg]

I moved myself and my family from Canada to the US on June 6th 2008 (We sold our house in Canada and closed on May 22nd ) and bought and closed on our house in the US on June 6th 2008.

We have no stocks, or investments or other property other than our primary residence that we sold before moving, and have no CDN source income.

In order to understand what I need to do for tax year 2008 I have a few questions and would be grateful to any one that can lend there expertise.

1. In calculating our Canadian Departure return from what I understand I’m to include all World Wide Income from January 1st to June 6th.

QUESTION – What would be an acceptable way of calculating this income for Canada? from my W2 do I take the amount in Box-1 divide it by 356 days and take that number and times by 158 (The amount of days in Canada)?. And do the same calculation for my tax credits for the actual amount of tax paid. Or should I just use my paystub from June and enter that amount.

2.) What Exchange rate should I use? The mean average of January to June or the average of the hole year that the bank of Canada puts out at the end of the year?.

Here are some other things that I need help with to make sure I have/ and will reporting everything correctly.

- Opened RRSP $12,500 CDN in late 2003, comply with the reporting requirements of Notice 2003-75

-In early 2004 Withdrew $12,000 under HBP and filed 8833 to identify this as tax free by Treaty along with the new 8891 showing the distribution in line 7a and in line 7b showed 0.00 as taxable and in line 8 showed the remaining amount of RRSP left which was $500.00 CDN at the time and calculated in USD, and I have continued to file 8891 every year since. I have never made any more contributions to the plan since it was originally opened.

- In 2008 before moving to the US I cashed out the remaining amount of the RRSP that has been report on the 8891 form. The plan had grown from the original $500 to 1,362.00 when I cashed it out I had the Bank withhold 20% in taxes. So would it be correct to add the $862.00 as Income on my 1040.

- Currently there is $10,500 still owing on my HBP that I will add as Income to my Departure Canadian return, but will not add to my 1040 because it doesn’t meet the meaning of Income.

Thanks for any help you can offer.

[nelsona]

1. I would simply determine what I have earned up until June. By my may 31 paystub. Use that paystub to determine my FICA credit. For fed/sate tax, whatever proportion of your entire 2008 US income you report on your Cdn return, will determine the proportion of your final US tax that you can use for credit. You can't use what you have paid so far, as this is merely withheld tax, not necessarily owed tax.

2. I would use the average for the period of time you earned the income, namley Jan-Jun 2008. Bank of canada site does this quite easily.

RRSP. Your info is generally correct. Only question is that you said you took out $12K and still owe 10.5K on your HBP. Did you put bak 1.5K at some point? You didn't say, and your account didn't seem to have grown back by that amount.

Putting that issue aside, you should report on 1040 the growth portion of your RRSP. However to determine that aamount for IRS purposes, remember to determin the $1362 in US at the rate in effect when you took the money minus the $500 in the 2003 rate. It will be more than US$862.

You are correct that the HBP non-repayment income is not taxable in US.

Just as a not for clarity (does not apply to your situation):

While your HBP withdrawl ITSELF in 2004 was not taxable in US by treaty, it was what is considered a withdrawal from the RRSP. One would typically have to make a calculation of the *previously* deferred income in the RRSP at that point and report *some* taxable income. That is from the treaty. In your specifc case, since the RRSP has no previously deferred income, you have NIL to report on 7b.

For those who have had a long standing RRSP, the HBP withdrawal would not have been taxable, by treaty, but previously deferred income would no be subject to tax, to the extent of the HBP withdrawal, so there would have been taxable income to include on 7b (and 16b of 1040).

[Greg]

Nelson great info thanks.

Just to clarify I paid back (Added to income) 1/15 or $800 to tax years 2006 & 2007.

When you say

"Putting that issue aside, you should report on 1040 the growth portion of your RRSP. However to determine that aamount for IRS purposes, remember to determin the $1362 in US at the rate in effect when you took the money minus the $500 in the 2003 rate. It will be more than US$862".

I'm assuming the "rate" is the Exchange rate back in 2003 if this is the case I think the raye was at 1.40. it would probably take up the majority of the $1362.

Thanks Again.

[nelsona]

I think you misunderstood.

Using your example, the C$500 you put in 2003 would be evaluated as $350 US. That is your basis

The C$1362 you took out would be $1362 US (ratio 1:1), thus your taxable income to report is $1012 (1362 minus 350) not $862.

You need to use 2 exchage rates, since your deposit and your withdrawal are so far apart.

[Greg]

I did misunderstand, after looking at you example it makes since. Thanks again for you help.


Just as a side note for anyone that was collecting child tax benefits and/or the new child care credit it does absolutely no good calling and notifying CRA that you are no longer entitled to collect. We notified them back in June and have made 3 other calls and they are still sending checks to us. I’m hanging onto them until they come asking for the money back.

[Greg]

Just a follow up question. Am I allowed to take a tax credit on my 1040 for the amount of tax I had to pay to canada by adding the $1,362 from my RRSP to my Canadian income? Not sure how to determine the amount of tax that adding the $1,362 would come to.

And what about the $10,500 left in the home buyers plan that will be added to my Canadian income. Because it's NOT added to my US income I'm assuming I can't take any credit for the amount of tax paid to Canada on this amount

And in what order is all this calculated for the credits- figure 1040 first then T1 find the credit from the T1 based on the $1,362 and then take this credit to my 1040 as foreign taxes paid?. Then Stop there?.

Thanks for any help

[nelsona]

Since you are not reporting the HBP income as income on your US return, you can't use it a credit. You *could* use it as a deduction on schedule A, but this would mean using ALL your Cdn tax asa deduction instead of a credit. You could work out both ways to see if it hepls.

[Greg]

Thanks Nelson for clarifying the HBP amount. Can I take the credit for the $1,362 that I cashed in from my RRSP? Since this amount is being reported. If yes in what order is the credit figured out.

The credit based on $1,362 will be minimal at best might not even be worth the headache of figuring this one out.

Thanks Again.

[nelsona]

You can.

[Greg]

I have another question. When we moved from Ontario to NY state Last June, Looking over NY state tax form IT-203 which we have filed every year because when we where living in Canada we worked in the WNY area are they entitled to tax what we clam is taxable on the federal 8891?.

I know it's taxable on the federal level just not sure about state.

Any help would be appriciated.

Thank You.

[Greg]

Ok after further reading of instructions for IT-203, I don’t believe the amount I put on 8891 is taxable in NY State, because the Distribution was taken before I became a resident of NY State.

However if the distribution was taken while I was a resident of NY state it would have been taxable.

And for tax year 2009 I would file IT-201 which is a full time resident In which case it does not give you an option to break out your Federal Income from NY State income.

[nelsona]

Any taxable portion of your RRSP would be carried over to line 16b of your 1040.

Generally all states would view that portion as taxable income.

This is normal. When you live in a state you are generally taxable on all income you make while in that state, be it foreign or earned in another state or earned in that state.

When you lived in ON, you were really filing your NY tax as a non-resident of NY (merely working there). You were only reporting what you earned in that state.

[nelsona]

So, if you cashed out RRSP after moving to NY, the taxable portion is reportable on your NY return (and 1040 and subject to 25% flat Cdn tax). If you cashed out BEFORE moving to US, it isn't taxable in NY (but is taxable in canada and Ontario as part of your pre-departure income).

P

[Greg]

Great thank you for clarifying for me.

That’s what I had figured after reading the IT-203 Instructions.

Because the distribution was taken [b]Before[/b] I moved to NY.

Taxable on 1040
Taxable in Canada and Ontario
Not taxable in NY State.

[nelsona]

Right. And its taxable on 1040 only because you file a full-year 1040, either by choice or by necessity.

if you did not have to full-year 1040, you would not have to report it on your 1040NR or your aprt-year 1040.