Cashed out RRSP in 2006

quixca · Post by **quixca** » Tue Mar 13, 2007 9:22 pm

I cashed out Canadian locked in RRSP in 2006 tax year under $ 10,000. I moved to the USA in Aug 2003 and have not reported RRSP previously and have not made any contributions in any of those years. I have now just become aware of the obligation to report this info after I had cashed my RRSP in and received a NR4 form in the mail from CRA. If I am understanding the posts on this forum correctly:
1.I need to file 8891's for 2003,2004/2005/2006
2.I need to include with the 8891's a 1040 x and statement of earnings or gains for each year.
3. What else am I missing here? , do these forms need to be mailed with my tax return for 2006?

Thanks to all in advance for you input it will be greatly appreciated.

nelsona · Post by **nelsona** » Wed Mar 14, 2007 5:25 am

If you elected to defer taxes until you withdrew, then you did not need to report any earnings in past years, but you did need to file 8891,

For 2003, you need to make a statement, since 8891 did not exist in 2003.

For 2006 you need to include on your return the taxable portion of your RRSP, which I have shown how to do elsewhere.

I would send the amendments for past years first, by themselves, and then send 2006 package.

quixca · Post by **quixca** » Wed Mar 14, 2007 7:25 am

Thanks for the reply. If I am understanding right that you are saying I need to send a statement of earnings for 2003 and indicate in that statement that I wished to defer taxes to later date. I have not filed anything prior to this as I was unaware and had made no elections as of yet. The taxable portion of the RRSP if understanding correctly is the interest it made while in the USA, is that correct in saying that? Then send the ammendents: statement only for 2003, 1040x's and 8891's checking box 6b indicating 2003 for the rest of the years ? So for 2006 I need to indicate my earnings on the 1040 which would be the interest earned on my RRSP while in the USA and file a 8891 anything else?

Thanks for the help, it has been greatly appreciated.

nelsona · Post by **nelsona** » Wed Mar 14, 2007 9:13 am

The 2003 statement I'm refereing to is a statement conforming to rev proc 2002-23. Since it is much like the 8891 form, and this year's has no date on it, I would suggest simply sending an 8891 for 2003.

The taxable portion of your RRSP will be the difference in the book value the day you became a US taxpayer and the day you collapsed it. This may be interst capital gains/lossses dividends, whatever.

Determine your book value when you came (in US dollars of Aug 2003) and the value when you sold (in Us$ value when you sold - line 16a on 1040). You will probably fing that you had a good gain in US$ since the Cdn dollar rose during this time. This will be taxable in US. (line 16b)

quixca · Post by **quixca** » Wed Mar 14, 2007 9:55 am

I beleive I understand it now, here goes:

1. file 1040 x no changes to that just fill in name address at top of form and sign bottom correct?

2. Include 8891's with 1040 x for all years up until 2006 and mail in ahead of 2006 return. 2003-2005 8891 item # 10 do I only enter in item (a) for interest income (difference between start year balance and end year balance) as well it says to enter this on 1040 but I am only sending in a 1040x correct ? For 2006 I am sending form 8891 only with my return for 2006 correct? Do I need to send a letter with those returns stating my error in reporting now or just the forms and forget the letter?

3. hypothetically if my RRSP book value was 6200 on 2003 and book value on cash out was 8865 my tax liabilty is S2665 correct? where do I include the 25 % tax amount of $2261 that Canada Revenue charged me? Does that give me a foreign tax credit on my return?

Thank you again your knowledge and advice has been invaluable. I am glad that this is the last of Canadian/US ties for tax purposes that I have.

nelsona · Post by **nelsona** » Wed Mar 14, 2007 10:06 am

You do not enter any information on line 10 for 8891. that is only for people who were NOT using deferral. You stop at the line which asks year end value.

The Cdn tax will either be used on form 1116, or asa deduction on schedule A foreign tax. You need to try both ways to see which will give a bigger reduction in US tax. Form 1116 will end up only giving you credit for about $500

quixca · Post by **quixca** » Wed Mar 14, 2007 10:36 am

last Questions for you and I beleive I am ready to file my returns.

1. Do I need to include a letter with my year 2003,2004,2005 1040x's and 8891's stating my error in not filing previously or just send the forms woith no letter together?
2. As well I need to indicate on 2004,2005,2006 8891's that I elected in 2003 for deferment correct?
3. For 2006 the year I cashed my RRSP I fully complete 8891 and put tax charged down on schedule a (I beleive that schedule a is my better tax advantage) then file my return?

I beleive my head has been spun but you have been a world of help, I cant thank you enough Sir (nelsona) my hats off to you.

nelsona · Post by **nelsona** » Wed Mar 14, 2007 11:23 am

1. No, just send forms
2. 2003 is the first year of deferral
3. for 2006, you still only complete up to line 8. 7a and 7b will be your gross and net income from the distribution. then the tax goes on sched a or 1116

sergey · Post by **sergey** » Fri Mar 16, 2007 7:26 pm

If I did not touch my RRSP (no contribution, no distributions) in 2006 , what should I answer in line 8 of part 3 of Schedule B ? What is "grantor" and "transferor" ?

nelsona · Post by **nelsona** » Sat Mar 17, 2007 3:33 am

As long as you have an RRSP, answer Yes. The definitions are convoluted.

Your 8891's take care of the 3520