Dear forum, we need your help.
Me and my wife live in US and she's Canadian citizen. For year 2015 we had minimal income (around $4000, mostly living on our savings and reinvesting all the profits back in our business, so that's how personal income is so low).
My wife has around 40K CAD in her RRSP in Canada (Quebec if it matters), she was not a resident of Canada for 2015. We want to pull some of this money out, pay 25% withholding tax and then file 217 section to bring this lower, possibly to 0.
Thing is, we need to pull it out now, before year end, and we don't know how to estimate the return. What we would like to have is a rough estimation, say:
Pull out 10K CAD, get all 25% back, so pay 0% tax
Pull out 20K CAD, get 20% back so pay x% tax and so on
I found few threads here on the forum, but these assumed that Canadian spouse was non-working and US spouse was working. Since our combined income is so low, does it change something for us? This 4K actual income is technically under her name if it matters.
Is there any way to estimate tax % for different scenarios now? We would like to pull out as much as possible under a reasonable tax rate and invest it in our business.
Also, will any Canadian tax software be able to handle this type of non-resident 217 return?
Thank you very much in advance.
Section 217, RRSP Withdrawal with "near 0" income
Moderator: Mark T Serbinski CA CPA
The 217 return would include only HER income (worldwide) but would include HER personal amounts, and perhaps even YOUR personal amounts, BOTH your medical expenses, etc.
Basically, whatever deductions (personal amounts, etc) that she can claim wll yirld no Cdn tax.
Anything above that amount will end up being taxed at ~23% upto about 30K.
So she needs to use an online tax software (like ufile.ca, which handles 217 quite easily) and put in various RRSP amounts to see what that will yield.
Of course, some or all of her RRSP would be taxable in US, so she might be taxable in US, with the Cdn tax used as a credit in form 1116.
Basically, whatever deductions (personal amounts, etc) that she can claim wll yirld no Cdn tax.
Anything above that amount will end up being taxed at ~23% upto about 30K.
So she needs to use an online tax software (like ufile.ca, which handles 217 quite easily) and put in various RRSP amounts to see what that will yield.
Of course, some or all of her RRSP would be taxable in US, so she might be taxable in US, with the Cdn tax used as a credit in form 1116.
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
Thank you nelsona!
So if I understand it right, we probably have a chance to have both our personal exemptions minus what we've earned. So for simplicity, if personal exemption is 10K and she earned 4K, she can withdraw:
20-4=16K tax free (no medical expenses and I earned 0). We will check it with Ufile.ca of course.
Also, if I understand well, only growth in RRSP is subject to tax in US. Since money is invested in CAD, even the minimal growth that we have there in CAD will be a loss in USD.
I'm sorry if my questions are somewhat "stupid", I'm not too familiar with Canadian tax system and get most of the information online.
So if I understand it right, we probably have a chance to have both our personal exemptions minus what we've earned. So for simplicity, if personal exemption is 10K and she earned 4K, she can withdraw:
20-4=16K tax free (no medical expenses and I earned 0). We will check it with Ufile.ca of course.
Also, if I understand well, only growth in RRSP is subject to tax in US. Since money is invested in CAD, even the minimal growth that we have there in CAD will be a loss in USD.
I'm sorry if my questions are somewhat "stupid", I'm not too familiar with Canadian tax system and get most of the information online.
Growth since she arrived in US, calculated in USD. How many years has she been in US?
There is a small hitch in the 217 rules whereby her credits are reduced if less than 90% of her income is that RRSP income.
That is why it is important to run the numbers with software. After putting her foreign income on schedule A statement of world income, I would start at 10K and go all the way up in $5K increments up to the entire amount.
I would say that the biggest amount that yields a tax of less than 15% overall would be a good amount, especially if that is all of your RRSP. Your target goal can be smaller, say, 5-10% if you foresee the same income pattern next1,2, 3 year, so would try to collapse RRSP in a few years rather than 1.
Your goal would be to collapse te RRSP as soon as possible. Iti is more of a nuisance at this point.
There is a small hitch in the 217 rules whereby her credits are reduced if less than 90% of her income is that RRSP income.
That is why it is important to run the numbers with software. After putting her foreign income on schedule A statement of world income, I would start at 10K and go all the way up in $5K increments up to the entire amount.
I would say that the biggest amount that yields a tax of less than 15% overall would be a good amount, especially if that is all of your RRSP. Your target goal can be smaller, say, 5-10% if you foresee the same income pattern next1,2, 3 year, so would try to collapse RRSP in a few years rather than 1.
Your goal would be to collapse te RRSP as soon as possible. Iti is more of a nuisance at this point.
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
nelsona, really sorry to bother you again, but we need your help
When I use the UFILE software it gives me choices of T4s and I assume the only T4 she will get is T4RSP. Since we've never seen this form (she only showed me regular T4 from previous years and it's not the same).
I'm taking a wild guess how to simulate this T4RSP slip, I see box 22, where it says "Withdrawals and commutation payments" so this will probably be how much we pull out, say 20K. From this 20K, 25% will be automatically withheld, where do we mention it?
Sorry for all this questions, it's just very hard for us to figure it out how to "simulate" this withdrawal.
Thanks in advance!
When I use the UFILE software it gives me choices of T4s and I assume the only T4 she will get is T4RSP. Since we've never seen this form (she only showed me regular T4 from previous years and it's not the same).
I'm taking a wild guess how to simulate this T4RSP slip, I see box 22, where it says "Withdrawals and commutation payments" so this will probably be how much we pull out, say 20K. From this 20K, 25% will be automatically withheld, where do we mention it?
Sorry for all this questions, it's just very hard for us to figure it out how to "simulate" this withdrawal.
Thanks in advance!
Ah, important detail.
She needs to file a departure return, as well as elect to file 217. It will all be on the same return. There is guidance in the tax guides for this. It is a little more complicated than if she were already a non-resident, but it is the same principle.
And it will be her world income for the entire year that will be used to determine taxrate, not just what she earned in US (same for your joint US return too).
she will get an NR4, I think you can figure out which line will have her gross RRSP withdrawal and 25% tax. She MUST have told the RRSP manager that she lives in US.
She needs to file a departure return, as well as elect to file 217. It will all be on the same return. There is guidance in the tax guides for this. It is a little more complicated than if she were already a non-resident, but it is the same principle.
And it will be her world income for the entire year that will be used to determine taxrate, not just what she earned in US (same for your joint US return too).
she will get an NR4, I think you can figure out which line will have her gross RRSP withdrawal and 25% tax. She MUST have told the RRSP manager that she lives in US.
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, RRSP manager was informed.
What makes it easier is that for these 45 days in 2015 she had 0 income and all her income started after she came to US.
For 217 + departure tax guide, CRA website mentions it and gives a link, but once I get there it gives no additional information, just explains emigrant status. I will keep on searching!
Thank you once again, I'll go search for the guidance in the tax guide for now.
What makes it easier is that for these 45 days in 2015 she had 0 income and all her income started after she came to US.
For 217 + departure tax guide, CRA website mentions it and gives a link, but once I get there it gives no additional information, just explains emigrant status. I will keep on searching!
Thank you once again, I'll go search for the guidance in the tax guide for now.
Since you are only estimating, you can forget any extra searching, just plug in info like I said above. Unless she has lots of stocks, business etc which are assumed sold when she moved.
You can worry about how to figure the departure tax return next spring.
Not much more I can help you with.
You can worry about how to figure the departure tax return next spring.
Not much more I can help you with.
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
nelsona,
We can't figure out how to make both selections: emigrant and s.217 in Ufile.
I guess what we can do is assume that emigrant status doesn't change anything because of 0 income anyway and just run the numbers with "deemed resident s.217", will this be accurate?
Thank you for super quick replies!
We can't figure out how to make both selections: emigrant and s.217 in Ufile.
I guess what we can do is assume that emigrant status doesn't change anything because of 0 income anyway and just run the numbers with "deemed resident s.217", will this be accurate?
Thank you for super quick replies!
We're not smart enough to even fill out 217 properly...
First part asks for:
"Canadian source income not reportable on NR return" and gives 3 options
[b]Net interest and other investment income
Net rental income
Other income[/b]
We input say 20K for other income.
Next is "Foreign source income earned during Canadian NR period"
We put 3K here
Then it goes "Enter the appropriate rate of withholding from the applicable tax treaty" and lists bunch of options including RRSP. Does 25% go there?
I don't see where to enter how much we already paid, i.e. 25% withholding tax = 5K. Without entering it, it gives us 0 return.
I guess we're the only ones who couldn't figure it out, I haven't found anyone asking a question how to fill out this form...
Thank you!
First part asks for:
"Canadian source income not reportable on NR return" and gives 3 options
[b]Net interest and other investment income
Net rental income
Other income[/b]
We input say 20K for other income.
Next is "Foreign source income earned during Canadian NR period"
We put 3K here
Then it goes "Enter the appropriate rate of withholding from the applicable tax treaty" and lists bunch of options including RRSP. Does 25% go there?
I don't see where to enter how much we already paid, i.e. 25% withholding tax = 5K. Without entering it, it gives us 0 return.
I guess we're the only ones who couldn't figure it out, I haven't found anyone asking a question how to fill out this form...
Thank you!
the fictitious rrsp income would be entered earlier (line 129 specifically)and the tax as well .you get this by faking the t4-rsp. it would thus be reported on the nr form, not listed on 217 schedule a. so you have zero other income from cdn sources.
Don't forget that you are doing this exercise not to figure the biggest refund. You are doing this to get the tax RATE that you will pay on your RRSP income.
The treaty withholding on RRSP is 25%
Don't forget that you are doing this exercise not to figure the biggest refund. You are doing this to get the tax RATE that you will pay on your RRSP income.
The treaty withholding on RRSP is 25%
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
From my quick calcs.
If she has $5000 in world income (cdn dollars remember) and she takes all her RRSP (40K) and that is all your income as a couple, then you will pay about $4600. That is about 11% which is pretty good.
If you take out $20K you will pay about $900 which is 4.5%. Great. but the trouble is you will still have $20K that will come out at 25% later, plus the headaches of having that account. The extra 20K you take will be taxed at about 18% which is still good, especially if 2015 is the only year when she will have this small income.
So, your choice to take between 20 and 25K and hope she has a another zero income year, or take it all, if you don't foresee another year like this.
.
If she has $5000 in world income (cdn dollars remember) and she takes all her RRSP (40K) and that is all your income as a couple, then you will pay about $4600. That is about 11% which is pretty good.
If you take out $20K you will pay about $900 which is 4.5%. Great. but the trouble is you will still have $20K that will come out at 25% later, plus the headaches of having that account. The extra 20K you take will be taxed at about 18% which is still good, especially if 2015 is the only year when she will have this small income.
So, your choice to take between 20 and 25K and hope she has a another zero income year, or take it all, if you don't foresee another year like this.
.
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