401(k) contribution deductibility in Canada

dje · Post by **dje** » Sun Nov 06, 2011 11:12 pm

I'm a Canadian living in the US, with residency in both countries for tax purposes.
I make 401(k) contributions that are matched by my employer.
I am under the impression that based on recent (effective 2009) tax treaty changes, I may now be able to deduct my 401(k) contributions in a similar fashion as if I was living in Canada and making RRSP contributions.

However, I can't find a bulletin that makes it clear. Form RC268 seems to only cover cross-border commuters (haven't seen a definition of that term).
http://www.cra-arc.gc.ca/E/pbg/tf/rc268/rc268-10e.pdf

I've also read:
http://serbinski.com/pdf/Fifth_Protocol ... acting.pdf
http://forums.serbinski.com/viewtopic.p ... light=401k

Does this apply to someone living full-time in the US? Also, will I be able to deduct my employer contributions as well?

Thanks in advance,
Dan

nelsona · Post by **nelsona** » Mon Nov 07, 2011 1:09 am

The bulletin you refer to is the correct one IF you are indeed a cross-border commuter.

If you are not, then you are a US resident, and should not be filing as a Cdn tax resident.

You can truly only be resident in one treaty country at a time.

dje · Post by **dje** » Mon Nov 07, 2011 4:38 pm

What if a taxpayer:

1. Lives in the US (therefore the IRS substantial residency test deems them a resident for US tax purposes)

2. Has residential ties in Canada (therefore the CRA deems them to have residential ties)

nelsona · Post by **nelsona** » Mon Nov 07, 2011 8:54 pm

The he is a deemed non-resident of canada. canada literlly pushes you out.

nelsona · Post by **nelsona** » Mon Nov 07, 2011 9:12 pm

After, you answered your own question: you LIVE in S. That makes you resident in US for tax purposes.

Nothing short of a spouse in canada could possibly make you residnet in Canada, regardless of how many properties you own there.

dje · Post by **dje** » Mon Nov 07, 2011 9:37 pm

Thanks for your replies. I'm not seeing that kind of leniency with respect to residential ties.

I'm referring to:
http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... g-eng.html

"
Generally, you are an emigrant of Canada for income tax purposes if you leave Canada to settle in another country and you sever your residential ties with Canada.
"

Residential ties are defined here:
http://www.cra-arc.gc.ca/tx/nnrsdnts/cm ... y-eng.html
and include:
- a home in Canada;
- a spouse or common-law partner (see the definition in the General Income Tax and Benefit Guide) or dependants in Canada;
- personal property in Canada, such as a car or furniture;
- social ties in Canada;
- economic ties in Canada.

nelsona · Post by **nelsona** » Mon Nov 07, 2011 9:48 pm

You are forgetting the treaty. While you are doing your own research look up "deemed non-resident". You will see it refers to treaties.

You are textbook case.

This is a BENEFIT for you. Why fight it?

dje · Post by **dje** » Mon Nov 07, 2011 10:13 pm

Interesting.

I was resistive, because I was under the impression that one had to undergo the "deemed disposition" on their RRSP, though it appears that you don't *have* to collapse your RRSP on exit after all.

Probably still time for a consultation.

nelsona · Post by **nelsona** » Tue Nov 08, 2011 8:09 am

Yes, I find that when people don't agressively pursue non-residency, it usually come back to bite them.

nelsona · Post by **nelsona** » Tue Nov 08, 2011 9:56 am

For example, many who hesittae to declare non-residency find that someone else determines that they are no longer eligible for certain benefits (GST, CCTB, OHIP, etc), with some financial consequence, when the taxpayer should have made this decision themselves.

Also, by not declaring NR status, they get into truble with improper withholding on certain Cdn income (most notably rental income, or RRSP withdrawals), which are sometime difficult if not impossible to correct in a tax advantageous manner.

While tax treaties are designed to make life easier for tax authorities, they usually ALSO make it easier for the taxpayer, certainly after the transition.

Canada has favourable treatment of almost all types of income for non-residents (which is not the case for US non-residents).

And, really, a Cdn working an living in US doesn't really have to cut any ties in canada to be deemed non-resident, as long as they set themselves up a US residents.