Inheritance and Dual Citizenship

[SailorLady]

I was born in Canada and have lived in the US for nearly 20 years - I am now a US Citizen as well as Canadian and residing in the US. My father recently passed away in Canada and left cash which will be distributed after probate. I am trying to find a way to invest that money up there. I am looking into RRSP's and read where tax deferral is now automatic - no filing of form 8891 is required. However, that may be only on existing RRSP that were created while being a Canadian resident. The amount is within the threshold where no US tax should be payable on the principle portion.

Am I able, as a dual citizen with plans to retire back to Canada later on, to purchase an RRSP up there? Are the financial brokers services permitted to sell it to me? If not, then I would have no idea what my options are. I don't want to leave the money just sitting in a checking account. Thanks for any insight and for this form which I found during internet searches. There is a lot of useful information here.

[nelsona]

Not sure what US tax you are wrried about. You could inherit ZILLIONS from your Cdn father, and none of it is taxable in US. Reportabl;e on 3520, yes, but not taxable.

Since it is not taxable, there is absolutely no benefit in you making forever taxble in an RRSP. Put it in bank and buy a Cdn property, or bring it to US and invest in Cdn stock., if you want it in the Cdn marketplace.

Don't go the RRSP route on this money.

Besides, it is unlikley that a broker would accept opening an RRSP with "new" money from a US resident.

[SailorLady]

It's my understanding that the INCOME is taxable. That the IRS taxes worldwide income made by US Citizens/residents. Is that not correct? All the information I am reading is that is, but maybe something is wrong with my information. If I put it in the bank they must report it to the CRA and they report to the IRS and I complete and FBAR each year and possibly another form I am not sure of. If it's in the bank earning interest I will pay tax to the US on that interest. There may even be the requirement for the CRA to levy a withholding tax. Again not fully sure on the withholding tax. I contacted TD Canada Trust and they can sell me an RRSP but it must be held in GIC's or cash only. If I bring it to the US and buy stock, then when I expatriate, as I plan to retire in Canada, the US will tax the income made on that stock. I was told not to invest in any 401K or anything here as when I leave I will have to pay tax if I exceed a certain asset threshold. So should I buy property and rent it out, then what about that income? I'm so confused as to what is correct, the information is conflicting everywhere. :-(

[nelsona]

Inheritance is NOT income, neithe in the eyes of CRA nor IRS. Now, the INCOME (interest, gains, etc) that your inheritance makes AFTER your father's death is taxable in your name, in US and probably in canada (if you leave it there)

And that would be every penny of that income (there is no threshold).

So, a little income has been genarated since death. Nothing you can do about that. Pay your taxes on that INCOME and move on. But to put it now into an RRSP would now make ALL of that inheritance taxable in canada in future (with no deduction for you), and ALL of the growth taxable in canada and US in future. That would not be wise.

take the money now, and put it in something that will generate income that may or may not be taxable income in future, but don't make the inheritance itself taxable by putting it in an RRSP, your father paid enough tax to canada when he died.

There are many more investments tha tare helpful to you (a US home for example), tax-managed funds, dividends, etc. Don't worry about the tax-deferral, you aren;'t in a high tax bracket.

Just not RRSP. And you would call canada trust, you would vcall TD Waterhouse for this. banks can't seel non-residents anything but GICs.

Please get the noton of an RRSP out of your head. You are in the US. Take advantgae of it with this unfotunate windfall.

[SailorLady]

I'm sorry, I am confusing you. the threshold I was referring to was when I expatriate. The total value of my investments here in the US would have to fall under a threshold and if they do fall under, I would not be taxed.

Bringing the money here would cost a lot due to the exchange rate.

That's why I would leave it there at the moment.

I thought there was a tax treaty between the two countries where I could file to pay tax on the income only in one country. Is that not correct? Double taxation exemptions exist under that treaty I believe. Again, I am reading and trying to absorb.

I understand your advice on the RRSP and it makes sense not to place the money in something that will tax me when I withdraw it. Even if I do so at a lower tax bracket, the whole amount is not now taxable. Makes perfect sense and I thank you for that advice.

I don't want to gamble with the money, nor do I want it to sit there not growing in a checking account. I would like to have it to help me in retirement. Everything is so complicated - my grandma would have put it in a can in the ground. lol!

If I bought a US home I would have to pay exchange on the money and right now that is not attractive either. Real estate is a bit scary after the crash. Where I am properties have still not recovered their values.

Who do you think I should consult with? An accountant up there - they charge 400.00 for an hour long phone consult. A broker - TD Waterhouse? I should fly up and meet with someone but I was trying to gather information and know basically what direction I was going in before meeting with someone so as not to waste the time and use it most productively.

Thank you for helping me. I appreciate it.

[nelsona]

This thresshold you speak of would include your worldwide holdings, so I would again not be thinking thta keeping the money outside US will prevent taxation of some sort. And this wopuld still be less than what you will pay on an RRSP. Don't be overly concerned with US taxation once you leave US. The only people screamiong were thoise you never lived in US and couldn't bear rthe thought of having to report to IRS. You are used to it.

Cost of exchange: The US dolaar is worth more, but if you can;t get past that thaty have the same name, so be it. But that doesn't change the fct that you should not be puting it in an RRSP.

Your are taxed in both countries if you have income in one country and live in the other, or if you live in Canada and are US citizen. Your goal should be to have as little taxable incopme wh you go back to canad -- anbd an RRSP would be the MOST taxable.

TD waterhouse (or any Cdn broker) can only sell you an RRSP -- which I've already said is a bad idea. You need to INVEST the money, and that can only be domne through a US broker. You are NOT losing money when you convert. What if you were converting to pesos, would you thing you were GAINING money, just because the peso costs less than the C$? No.

If your worried, put it in a Cdn bank (non-RRSP) and convert 1/2 now and half 6/12 months from now. I would just take it all now.

Consult with US financial advisor who is familiar with some cross border issues. Robert Keats comes to mind. You have a lot of misinformation coming out of your posts. This is an online world. No need to fly anywhere for this.

[SailorLady]

Thanks again, I do agree not to buy an rrsp. I see how putting non taxable money into a taxable vehicle is just dumb. I was focused on finding the best way to have this money grow a bit so I could have some security for retirement and then started reading all the IRS web site information on world wide income and reporting rules. I knew I didn't have to pay tax on the principle sum, but rather the income, so I went to tax deferment from there without even considering that the principle was not taxable and buying a taxable investment with tax free money didn't even appear in my mind in the barrage of information - again, I became overwhelmed and confused. Thank you for talking me down! :-)

I will check out Robert Keats and stop rushing my thinking, take my time and consider options.