Reporting RRSP (mutual fund) earning to FTB

[calvin_g]

I'm reading the thread in

http://www.grasmick.com/board/?topic=topic2&msg=9914

My wife has a RRSP mutual fund account at ING. ING switches funds every month without my knowledge. The market value of the account changes but it doesn't earn any interests nor divident. We didn't withdraw from the account.

Do I need report the change of value as income to FTB (California)? Is switching fund within the account considered "sell"?

Thanks,
Calvin

[nelsona]

You need to report the account as if it wasn't an RRSP but was a regular investment account.

This meand that every transaction in your account must be evaluated for any interst, dividends and/or cap gains or losses it triggers, and thebn be reported as such.

As you are no doubt aware, even if you elect to defer RRSP taxation federally (thru the Rev Proc 2002-23 process and Form 8891), you still are taxable in california.

You might be verifying with ING if they are licensed to handle california resident RRSPs (my guess is they are not). Have you clearly informed them that you are Cdn non-residents?

You might also consider either moving the funds to a more tax efficient set of investments, or cashing them in altogether, otherwise this yearly taxation on moving the funds around will eat away at any supposed profits to ING switching your funds around.

This auto-switching maneouvre is particularly useful for sheltered accounts, which, yours, because of your residence in US, is not completely the case. RRSP funds usually don't worry about tax efficiency year-by-year, since the account is sheltered.

[nelsona]

Just to be more blunt:

Yes, a switch withing your account is a 'sell'. You cannot simply report the yearly change in total value as this has little to do with taxable income.

Now, some funds set themselves up as a 'basket' of 3 or 4 funds which the mananger then re-allocates at his discrestion. In so far as you own units of the 'basket', these would not be 'sells'. You buy units of the basket: ABCXYZ

But if you have 10 units of ABC and 20 units of XYZ, and then next month you have 15 units of each, you have sold 5 units of XYZ, and this is reportable.

It will be up to you to keep track of the cost basis of each purchased units you make and the proceeeds of each sale, and report this.

remmber too, that for US tax purposes, the method(s) in determining cost basis are not as straight forward as in canada (which is alwats the 'lumped' cost basis method), since one can elect last in first in first out by default, or cherry-picking which units to sell, to minimize and delay taxation. In fact, the lumped method is not an approved accounting method in US.

[calvin_g]

Thanks Nelson.

If I'm not likely able to figure out the cost base from the statement, can I just report the change in value as income or lost? After all, the change in value is small ($100-$200). I'm trying to avoid the headache if possible.

[nelsona]

As long as you overestimate your income every year, you will not be putting yourself in trouble.

However, as i said, change in value is NOT income. I could easily lose $10,000 in one year in my RRSP 'value' and still have reportable positive income.

And if your RRSP is changing in value only $100-200 dollars per year, it is time to find another broker.

[calvin_g]

assuming
1. bacame a California resident on aug 6, 2005
2. he had 10 units/shares of fund ABC at $8.00/share on aug 6, 2005 in his RRSP account
3. on Nov 1, 2005, he sold 10 shares of ABC at $12.00 and bought some 4 shares of XYZ at $30/share

am i correct that the gain to be reported on 540NR for such switch is (12-8)*10=$40.00?

Thanks,
Calvin

[nelsona]

Just to be precise, you would need to tell me what the $8.00 represents:

If you BOUGHT the shares for $8.00 9the BOOK VALUE) then your calcualtion is correct.

If however, their MARKET VALUE (which is NOT the book value, and is not used to calculate cap gains) is $8.00, this is of little use.

You need to know the adjusted cost basis for all your sales.

[nelsona]

So, just to re-work your post;

1. became a California resident on aug 6, 2005
2. he had 10 units/shares of fund ABC which were valued at $8.00/share on aug 6, 2005 but which he bought at $7.00 in his RRSP account.
3. on Nov 1, 2005, he sold 10 shares of ABC at $12.00 and bought some 4 shares of XYZ at $30/share


He reports a cap gain of (12.00 - 7.00 ) x 10 = $50.

[Oliver]

Nelson,

Can you expand on what you meant by "licensed to handle california resident RRSPs"? Is the licensing by Canada or by California?

Thanks, Oliver.

[nelsona]

This is licensing by california -- or at least compliance with california requirements.

Your Cdn broker/dealer would know if they arecompliant to california regs.

[cantousismessy]

[For CA non-residents but for US resident situation]

Does this mean that any income [generated by dividends/sell/buy] is a capital gain even though it's in your RRSP account?

I thought that the whole point of leaving money in RRSP is to ensure that they don't get taxed - even for the growth - doesn't matter you are in CA or US.

If so, is there a way to get it deferred? Which other states do this and how can one find out - i surely don't want to call IRS as those folks are a mess.

[nelsona]

Just for clarity, please don't use CA for Canada. CA means California in this context.

RRSP income is deffered until withdrawl in canada. The IRS [u]allows [/u]one to defer the income by filing form 8891. Eventually, when you withdraw RRSP funds as a US resident, you will pay tax to canada (25% or 15% of total) and 'some' tax to US and state, depending on the growth of your RRSP since you arrived in US.

Only california currently taxes RRSPs even that have not been withdrawn from.

[cantousismessy]

Thanks for Clarification .. Also will remember CA tip. I am in Florida so I need to find out what's the situation here.

[tony]

I have one important question:

1. Do I need to add all my foreign bank accounts interest to california tax? during my non-resident alien? (not yet passed 183 days)

2. when do I need to report canadian rrsp to state / california tax? starting day 1 - when i start working in california? or the second year? e.g. arrived in US mid Nov 2016.
So, for 2016 tax, no need to report rrsp, but will need to report rrsp in 2017 tax.

thanks