RRSP opened in 2008 for 2007. Do I need to file 8891 for 20

GoronUSA · Post by **GoronUSA** » Sun May 25, 2008 11:24 pm

Dual citizen. Living/working in Canada since mid 2006.

I decided to participate in my employer-sponsored RRSP in early 2008. I made a single lump-sum deposit that I am counting as an RRSP deduction on my 2007 CDN return. Since technically I did not own an RRSP at all in 2007, do I need to file an 8891 on my US return for 2007 or will/can I wait until 2008 to do this?

Secondly, if my understanding of Form 8891 is correct, when I do start filing 8891s, I can choose to answer No to 6a and No to 6c and claim my undistributed earnings in 10 so long as my US tax credits (foreign + child) can offset the amount of resulting tax, thereby allowing me to claim more of my eventual distrubutions (i.e. when I retire) as tax-free on my future US returns. Is this right? Is this an advisable strategy (i.e. delay the irrevocable election until the tax burden for a given year proves too disadvantageous to accept?)

nelsona · Post by **nelsona** » Mon May 26, 2008 12:59 pm

You have no 8891 requirements for 2007.

Your strategy is sound. You can always choose to report your yearly earnings until you elect to defer (whether or not this results in US tax or not). Once you elect, then the deferred income becomes part of your taxable amount when you withdraw it.

As you may know the treaty is making employer-sponsored RRSP contributions tax deductible in US. This may make the withdrawals of principal taxable in future, we will have to wait for regs on this. You might not be able to elect to make the contributions taxable (which is the same as 401(k)).

GoronUSA · Post by **GoronUSA** » Thu May 07, 2009 12:02 pm

Now that the treaty update is complete, can I elect to make the contributions to my RRSP taxable, along with any gains, thereby delaying ALL taxation on my RRSP?

nelsona · Post by **nelsona** » Thu May 07, 2009 1:05 pm

Not quite sure what you mean by "delaying" taxation if you pay tax now.

If you make your RRSP contributions taxable (as they are til now) and you pay tax on your RRSP income yearly, then you are not 'delaying' taxation, you are in fact speeding atxation (in US) and are completely removing any possibility of getting tax credit later when you actuallt withdraw the money.
You would be creating PURE double taxation.

maybe you need to clarify.

GoronUSA · Post by **GoronUSA** » Tue May 12, 2009 2:07 pm

Sorry, let me clarify. If I elect [b]not[/b] to deduct my RRSP contributions from my US taxable income and further claim all gains that my RRSP makes (i.e. on my 8891), would I not be exempt from all US taxation on the RRSP once I begin withdrawals in Canada?

nelsona · Post by **nelsona** » Tue May 12, 2009 6:38 pm

Yes. But as I said, you would have paid some US tax on the entire amount, and then you will pay cdn tax on the entire ammount, but since those taxes will not occur in the same years, you will get no tax credit for either.

The whole point of 8891 and deferring taxation is to have the tax you eventually pay in Canad coincide with the US tax.

And giving up the child credit to make this work is throwing away 1000/child in tax, any way you look at it. If you owe no tax, you still get the credit.

GoronUSA · Post by **GoronUSA** » Wed May 13, 2009 3:01 pm

I'm not sure I fully understand. I file a form 1116 every year to claim credit for the taxes I pay on my CDN income. I usually wind up with excess US tax credits that I can't use on my US return. If I decide NOT to deduct my RRSP contribution from my taxable US income and claim any interest made until such point that my tax credits for a given year can't offset enough of my tax burden, I will wind up not having to pay taxes on those RRSP monies when I withdrawal them. I don't see what that has to do with giving up the child tax credit? I'm not using form 2555 to claim any exclusion.

nelsona · Post by **nelsona** » Wed May 13, 2009 4:36 pm

" I don't see what that has to do with giving up the child tax credit?"

You said earlier in this thread " as my US tax credits (foreign + child) can offset the amount of resulting tax". I took this to mean the child tax credit. If you end up owing no US tax this year INSTEAD of getting $1000, you are giving up the child tax credit.

"I will wind up not having to pay taxes on those RRSP monies when I withdrawal them" For the third time, indeed you will not pay US tax, but so what? You will pay Full Cdn tax.

nelsona · Post by **nelsona** » Wed May 13, 2009 4:41 pm

and depending when/if you go back to US, having foreign tax credits in the bank, instead of having 'spent' them on deductible RRSP expense might prove useful.