Pension/RRIF Passive on form 1116?

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Filo
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Pension/RRIF Passive on form 1116?

Post by Filo »

My company retirement pension income is listed on 1040 line 16b.

For the last 14 years, that pension income has been categorized as Passive Income on Form 1116 (the first ten years by my chartered accountant, and the last four years by myself) -- and the IRS has accepted the tax forms all those years and raised no objection to the Passive Income categorization.

For 2011 the situation is complicated by the fact that last year I received my first RRIF payout, which is equivalent to a pension payout.

Since the IRS consistently accepted the Passive Income categorization, I am leery of rocking the boat at this point by suddenly changing the pension income to the General Category after all these years.

I understand nelsona's advice, in various past posts, that pension and RRIF payouts are General Category Income on the basis that anything not explicitly mentioned becomes General Income by default.

But given the IRS's long-term acceptance, can it be that, de facto, the IRS tolerates the choice of Passive for pension/RRIF payouts?
nelsona
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Post by nelsona »

Pensions are not passive, since they relate to work performed in another country, and are this better classified as general limiation income, like wages.

I'm not one to perpetuate a wrong decision. I suspect that IRS hasn't even looked at these forms.

I presume you have built up quite a lot of carryforward over the years, and you fear losing these?

I could see the argument that RRSp/RIFs are passive, particularly if one does not avail themsleves of the treaty deferral, which I'm sure you have, but I don't see how pensions could ever have been thought of as passive.

See:
http://financial-dictionary.thefreedict ... ive+income
"passive income (loss): A special category of income (loss) derived from passive activities, including real estate, limited partnerships, and other forms of tax-advantaged investments. Investors are limited in their deduction of passive losses against active sources of income, such as wages, salaries, and pension income.
Some money managers like to refer to pensions as "passive income", but this stems more from the notion that it is income that you get without working for it, without spending time earning it, even without thinking about it. This is not the same as true passive income, which is defined under 1116 quite elaboartely.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Filo
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Post by Filo »

If I switched the pension income to General for 2011, what would I do about the 14 years that I listed it as Passive?
nelsona
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Post by nelsona »

Unless you have a large sum of passive category tax that you have carriedforward AND that you will be able to use, I see no reson to change any of the past. Simply correct your filing now -- or go back as far as your carry forward can be reasonably used.

After all, your OAS, CPP, pension and RRSP are all gen limit income. What have you been doing with CPP and OAS?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Filo
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Post by Filo »

Passive/General pension income: the IRS has accepted Passive for 14 years; you don't think my suddenly switching pension to General will catch the IRS's eye so that they will then rake me over the coals?

OAS/QPP: by the USA-Canada tax treaty, these are taxable by Canada but not by the US. So I don't report them, and I prorate the Canada/Québec tax paid to eliminate the tax paid on OAS and QPP, using the reduced result as the foreign tax paid to be claimed on the 1116. This is what my chartered accountant did.
nelsona
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Post by nelsona »

I'm aware of the tax treatment of CPP/OAS; I thought you lived in US. By the way, SS is only taxable in canada too, if you get any.

You are the one asking the question if you should change from Passive to general. I would. If you ever move to US, you will certainly want to, because of the favorable treatment of CPP/OAS, which are also gen limit.

I already told you what I thought on the subject, so the decision is yours.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Filo
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Post by Filo »

Thank you for taking the time to give me detailed information and advice, nelsona. That helps.
jenfin
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Post by jenfin »

Yikes! I am in the same boat. I am a dual citizen resident in Canada. I have always reported my Canadian Company pension as passive income. Unfortunately just last month I threw out my old US tax books but I am almost certain at one time in the 1116 instructions it listed "pensions" as passive income. There must be alot of us in this boat. I remember at the time being unhappy that it was no longer classed similarly to wages and other earned income and therefore not eligible for the 2555 exclusion.
Filo
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Post by Filo »

@jenfin:

"There must be a lot of us in this boat." Yes. And with the baby boomers coming along behind us, there will be a lot more.

And . . . even if you categorize pension as General on Form 1116, it will *still* not be eligible for exclusion on Form 2555, because it is not earned income.

Which is unfortunate, because as the US keeps interest rates low in the hopes of stoking inflation to lower its debt-to-GNP ratio, the exchange rate will finally drive our incomes here up into Alternative Minimum Tax territory.
treetops10
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Re: Pension/RRIF Passive on form 1116?

Post by treetops10 »

An old thread but I have a question on an answer you wrote..specifically
"ou are the one asking the question if you should change from Passive to general. I would. If you ever move to US, you will certainly want to, because of the favorable treatment of CPP/OAS, which are also gen limit."
Why would having general limitation help with CPP and OAS?
I am in the situation of moving back to US with large unused credits.
nelsona
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Re: Pension/RRIF Passive on form 1116?

Post by nelsona »

If you live in US, CPP/OAS are taxed only in US , but are still considered Cdn-sourced for FTC purposes, so you can add these amounts to your gen limit 1116, along with other Cdn pensions and RRIFs etc, which would likely get you to use more of your Cdn tax reserves towards current FTC.

(btw, the reverse isn't true for Cdn residents: while only Canada taxes SS when you live in Canada, it does not allow you to include the SS as foreign income in determining your FTC, because that income was not taxed in US).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
treetops10
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Re: Pension/RRIF Passive on form 1116?

Post by treetops10 »

Thank you very much! You just saved me $1000.
I'm in the US and wasn't aware I could add CPP/OAS to Gen Limit category on top of my Canadian pension income.
Now part 2 of the question: can I add my Canadian investment income to Gen Limit also or, is this income in the Passive category? I have cap gains/interest/dividends from a non-registered balanced portfolio fund in Canada managed by RBC and taxed under the US/Canada tax agreement.
Also, would my pension annuity be in the Passive or General category?
I'm seeing conflicting opinions on how to categorize incomes. Form 1116 can sure get complicated!
nelsona
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Re: Pension/RRIF Passive on form 1116?

Post by nelsona »

Its the fact that they are pensions that make them gen limit.

Investments that are not pensions, are passive.
Curious as to where you are getting conflicting info.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
treetops10
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Joined: Sat Feb 02, 2019 3:38 pm

Re: Pension/RRIF Passive on form 1116?

Post by treetops10 »

Yes, I can see that my annuity is a pension as that is in fact where the monies originated....a bankruptcy, an underfunded pension plan with final proceeds used to buy pensioners annuities. (read Nortel Networks if that rings a bell).
It is not clear why my investment portfolio income could be considered to be a pension despite that is how I use it. Maybe I misunderstood,
So annuities are pension and Gen limit along with CPP and OAS.
Investment income from my managed portfolio is what Passive or General?
Sounds like its Passive.??
Is that correct??

I will have to look back at where I got conflicting info or my interpretation of such, Think part was from
1116 instructions: eg Passive income. Passive income
generally includes dividends, interest,
royalties, rents, annuities, Will have to look back for the other opposing views which confused me.
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