Hello,
It has been explained in previous posts how to calculate the US-taxable and
non-US-taxable portions of a Canadian RRIF withdrawal for a US citizen
living in Canada.
First question: does this affect the Canada-paid tax I declare on US form 1116?
Fictional example (figures in US dollars):
RRIF withdrawal = 10,000 = 6,000 non-US-taxable + 4,000 US-taxable
All other income = 40,000
So total income = 50,000 (for Canada)
But total income = 44,000 (for US)
Total Cdn tax paid = 20,000
But Cdn tax paid declared on US form 1116 = 20,000 x (44,000 / 50,000) = 17,600
Is this correct?
Second question: since Canadian taxes are so high, the foreign tax credit
will cancel my US taxes even if I simply declare my entire RRIF = 10,000
US-taxable. So is there any disadvantage to doing that? Is AMT the only
threat?
Effect on Form 1116 of nontaxable part of RRIF withdrawal
Moderator: Mark T Serbinski CA CPA
yes, as long as the income your are declaring to IRS is the same taxable income on both returns ( for example you did not decrease any earned income via form 2555) then the tax paid is prorated as per your amount 44/50 = $ 17,600.
Why declare more income than you are suppose too. The RRIF was set up when you did the election to defer tax until you withdraw so that value is tax free always that is why you hve a difference in US and CND taxable amounts, I see no purpose in taking in income that is tax free, yes the AMT is always an issue and would be worst if you were to include more income than you are suppose to.
Why declare more income than you are suppose too. The RRIF was set up when you did the election to defer tax until you withdraw so that value is tax free always that is why you hve a difference in US and CND taxable amounts, I see no purpose in taking in income that is tax free, yes the AMT is always an issue and would be worst if you were to include more income than you are suppose to.
JG
By making it all taxable, you are in effect "storing" the non-taxable portion, so it is not lost.
But as JG says, there is little point doing this.
You need to be consistent year-to-year, so reporting 100% taxable in one year would imply that the entire RRIF is 100% taxable EVERY year, which may not work out in some years as no tax in US.
btw, one could argue that the tax on the RRIF is 1/5th of your total tax, regardless of the amount that is taxable in US. That is certainly how one treats non-resident flat tax.
But all that will do is build uop your carryforward, not save you any tax.
But as JG says, there is little point doing this.
You need to be consistent year-to-year, so reporting 100% taxable in one year would imply that the entire RRIF is 100% taxable EVERY year, which may not work out in some years as no tax in US.
btw, one could argue that the tax on the RRIF is 1/5th of your total tax, regardless of the amount that is taxable in US. That is certainly how one treats non-resident flat tax.
But all that will do is build uop your carryforward, not save you any tax.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Why declare more income than I need to?
I have to admit that it's because going back through 40 years of records to total up all the cash contributions, each converted to US dollars, is a daunting task. I have held more than a dozen different RRSPs, now all coalesced into one RRIF.
Do I have to produce a clear table to convince the IRS that my cost base is correct? Do I also have to send receipts or statements as proof?
Will it make sense to the IRS that all cash contributions to all my RRSPs simply wound up feeding, indirectly, into my one final RRIF? (There were no withdrawals from the RRSPs.)
Is my cost base *only* the sum of all cash inputs?
Or is my cost base the sum of cash inputs plus reinvested dividends/interest?
I have to admit that it's because going back through 40 years of records to total up all the cash contributions, each converted to US dollars, is a daunting task. I have held more than a dozen different RRSPs, now all coalesced into one RRIF.
Do I have to produce a clear table to convince the IRS that my cost base is correct? Do I also have to send receipts or statements as proof?
Will it make sense to the IRS that all cash contributions to all my RRSPs simply wound up feeding, indirectly, into my one final RRIF? (There were no withdrawals from the RRSPs.)
Is my cost base *only* the sum of all cash inputs?
Or is my cost base the sum of cash inputs plus reinvested dividends/interest?
If you have been a USC all your life, then only your contributions can be considered your investment. This has been the rule since 1985.
Your tax returns can help you, since it would list your contribs. Your reinvested dividends are taxable.
You need to come up with some figure, otherwise the entire amount of the withdrawl IS taxable in US. the burden of prrof is on you. You keep this proof until asked, like most things dealing with IRS.
gary guavin's website has such a table.
http://www.garygauvin.com/WebDocs/RRSP% ... 202011.pdf
Your tax returns can help you, since it would list your contribs. Your reinvested dividends are taxable.
You need to come up with some figure, otherwise the entire amount of the withdrawl IS taxable in US. the burden of prrof is on you. You keep this proof until asked, like most things dealing with IRS.
gary guavin's website has such a table.
http://www.garygauvin.com/WebDocs/RRSP% ... 202011.pdf
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Yes, lifelong USC. Since only the contributions count, it's doable, so I'll do it.
Gauvin's table is a help -- thank you. I can modify it to suit my situation.
Question: can I get away with using the average annual exchange rate every year, despite the fact that many of the yearly contributions were a single lump sum?
Gauvin's table is a help -- thank you. I can modify it to suit my situation.
Question: can I get away with using the average annual exchange rate every year, despite the fact that many of the yearly contributions were a single lump sum?