RRSP, US return

amaloy · Post by **amaloy** » Sun Jan 25, 2009 7:20 pm

I know there's tons of info here about this already, but I didn't find exactly the information I was looking for.

I'm a US citizen living in Canada. I'm contributing to an RRSP. My question is about my US return. I've learned about 8891 and 1116. What I want to know is where exactly I deduct my RRSP contributions from my taxable income.

I'm sure it has to be somewhere on 1116, or even 1040, otherwise my Canadian taxes paid would seem insufficient for my entire earned income.

Or maybe I was only supposed to report the income that I ended up paying taxes on on (i.e. after subtracting the RRSP contributions)? I doubt that though.

Thanks for any help.

nelsona · Post by **nelsona** » Sun Jan 25, 2009 9:52 pm

For 2008, you don't. IRS does not recognize RRSP contributions.

For 2009 and forward, you can only deduct your contributions made to your employer. Contributions made on your own will continue to be non-deductible.

The deduction would be implemented by reducing your wage on line 7 by your contribution or the maximum the treaty allows, whichever is less.

nelsona · Post by **nelsona** » Mon Jan 26, 2009 6:05 am

Next year, you will also indicate your deduction on an 8833 form, since this is a treaty-based benefit.

amaloy · Post by **amaloy** » Mon Jan 26, 2009 8:17 am

I'm a bit confused. I didn't pay Canadian income tax on the amount that I contributed to my RRSP, but I'm going to have to pay US income tax on it? Then when I withdraw it in the future I'm going to have to pay Canadian tax on it too?

I guess if I use the Foreign Earned Income Exclusion I won't have to worry about this (for earned income).

So, if I decide use the Foreign Tax Credit I get screwed because I likely did not pay enough Canadian income tax (because of my RRSP deductions), according to the US, to account for my total income. is this right?

Thanks.

nelsona · Post by **nelsona** » Mon Jan 26, 2009 8:59 am

The 'problem' you describe is excactly why the treaty had to be amended.

However, whether you use the FEIE of foreign tax credits, it is unlikely that you will owe any US tax due to the loss of this deduction. The deduction of cross-border employee-based retirement accounts helps Cdns working in US more than vice-versa, and for those who only commute cross-border to work.

Most US citizens living and working in Canada have been contributing to RRSPs for years wthout triggering US tax.

What the treaty does do however, is make less of your RRSP non-taxable upon withdrawal, as, starting in 2009, the contributions are deductible on 1040 and thus will be taxable on withdrawal.

So, you need to track ALL the contributions you have made until Dec 31 2008, and then keep track of RRSP contributions you DON'T make thru work from now on: this will form the basis of your non-tatxable RRSP (for US purposes).