Based on other tax advice, I submitted 8891 for tax year 2005 and said "yes" to line 6c (irrevocable election). I don't know exactly what is meant by irrevocable, but I have some clarification questions:
(1) I had this RRSP for a number of years. When I cash out, will the amount in there (say $50K) be considered principal, income, or something else?
(2) I probably should submit forms back to 2002. But since I've already made the election irrevocable, can I do this? Would I use the now undated 8891 for the years before 2004?
Irrrevocable election to defer
Moderator: Mark T Serbinski CA CPA
The irrevocability is going forward, not backward. Thus, if you were taxable in US before 2005, and did not submit *something* to denote your intention to defer taxation, you are taxable on your RRSP income those years.
In determining what will be taxable when you withdraw you need to determine what the BOOK value -- in then US$ value -- of your RRSP was the day you became taxable in US. This ammount will be non-taxable. everything more than this will be taxable when you begin taking money out, and I've described this elsewhere.
In determining what will be taxable when you withdraw you need to determine what the BOOK value -- in then US$ value -- of your RRSP was the day you became taxable in US. This ammount will be non-taxable. everything more than this will be taxable when you begin taking money out, and I've described this elsewhere.
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
So, are you saying I should go back 10+ years (when I first started my RRSP) and record my contributions for those years -- and then segment everything by investment type? I'm not even sure that data would still exist. Is "the day you became taxable" the day the RRSP first earned income or gains?
If I understand correctly, from a TAX perspective, and not a reporting/audit/penalty perspective, there is no advantage to going back and refiling 8891s for all those years. 8891 is simply to delay taxation; is that right? I am not suggesting I don't file; I'm just trying to understand the impact of 8891.
If I understand correctly, from a TAX perspective, and not a reporting/audit/penalty perspective, there is no advantage to going back and refiling 8891s for all those years. 8891 is simply to delay taxation; is that right? I am not suggesting I don't file; I'm just trying to understand the impact of 8891.
If you are US citizen, you became taxable on your RRSP the day you created it. Only the contributions are to be withdrawn tax-free. any growth is taxable.
If you are not US citizen, then the book value the day you moved to US (or january 1 of that year depending on how you filed) is what you will be able to withdraw tax-free. You do not need to go back to the beginning, all you need to do is determine the book value of what you held on that day.
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Filing 8891 serves 2 purposes, one optional, one NOT. 8891 can be used to defer taxation. election not to defer means reporting your internal earnings. Not reporting your internal earnings and not defering is called tax evasion.
8891 also serves the purpose of reporting a foreign trust. Not reporting a foreign trust, either on 8891 or on the much more complicated 3520 forms puts you in line for HUGE fines for failing to report the existence of a foreign trust. This became requirement in 2003.
If you are not US citizen, then the book value the day you moved to US (or january 1 of that year depending on how you filed) is what you will be able to withdraw tax-free. You do not need to go back to the beginning, all you need to do is determine the book value of what you held on that day.
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Filing 8891 serves 2 purposes, one optional, one NOT. 8891 can be used to defer taxation. election not to defer means reporting your internal earnings. Not reporting your internal earnings and not defering is called tax evasion.
8891 also serves the purpose of reporting a foreign trust. Not reporting a foreign trust, either on 8891 or on the much more complicated 3520 forms puts you in line for HUGE fines for failing to report the existence of a foreign trust. This became requirement in 2003.
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
No. it just means you need to keep track of your contributions.
When you start taking money out of your RRSP (or RRIF) you will be able to reduce the gross ammount by the ammount contributed. This will be your 'basis' in your plan.
If you had, in the past been reporting your yearly accrued income on your 1040, you could have added this ammount to your basis. Now, you can't since you have invoked the treaty -- irrevocably.
When you start taking money out of your RRSP (or RRIF) you will be able to reduce the gross ammount by the ammount contributed. This will be your 'basis' in your plan.
If you had, in the past been reporting your yearly accrued income on your 1040, you could have added this ammount to your basis. Now, you can't since you have invoked the treaty -- irrevocably.
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
That helps, thanks. One last small clarification: If invoking the treaty in 2005 also makes past income undeclarable, then why are earlier 8891 forms necessary at all? In other words, if the rules apply historically to one thing (adding income to your basis), why not the other (income declaration "evasion")? Is this just a case of that's the way it works?
I did not say that invoking the treaty in 2005 meant that you were bound to it before this date. It only is in effect going forward.
I merely assumed that since you did not declare your RRSP income in the past, that you did not want to go thru the bother of reporting it (interst cap gains and dividends) on your 1040s for 2000-2004 and paying tax and penalties -- if any. You are quite free to do this for those years, and any reported income would become part of your future basis when withdrawing from RRSP.
You would still need to file an 8891 for 2003 and 2004 (with the election NOT invoked) to cover your foreign trust reporting requirement.
I merely assumed that since you did not declare your RRSP income in the past, that you did not want to go thru the bother of reporting it (interst cap gains and dividends) on your 1040s for 2000-2004 and paying tax and penalties -- if any. You are quite free to do this for those years, and any reported income would become part of your future basis when withdrawing from RRSP.
You would still need to file an 8891 for 2003 and 2004 (with the election NOT invoked) to cover your foreign trust reporting requirement.
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
You are having trouble understanding me. you do have to read other threads on this too.
You elected in 2005 to invoke the treaty. This means that you must invoke it every year forward.
You are free to invoke it for any other year before this. That will become your first year. Sio if you want to invoke it for 2002, GO AHEAD. File 1040X with 8891, and it will be in effect. Alomng with it you must also file one for 2003 and 2004.
What I am saying is that you have to do something for previous years: either catch-up on 8891 or catch up on paying your taxes and filing 8891.
You elected in 2005 to invoke the treaty. This means that you must invoke it every year forward.
You are free to invoke it for any other year before this. That will become your first year. Sio if you want to invoke it for 2002, GO AHEAD. File 1040X with 8891, and it will be in effect. Alomng with it you must also file one for 2003 and 2004.
What I am saying is that you have to do something for previous years: either catch-up on 8891 or catch up on paying your taxes and filing 8891.
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
I guess it did come back to what was m,eant by irrevocable. The irrevocable part was not that you first elected in 2005 and this could never be changed. It means that once it is invoked for one year all SUBSEQUENT years must follow, So, you could go back to 2002, and it would affect 2003, 2004, etc.
This, of course, begs the question: If it is irrevocable, why have to 're-invoke' it every year? That's the confusion.
Some people waste their time playing golf....
This, of course, begs the question: If it is irrevocable, why have to 're-invoke' it every year? That's the confusion.
Some people waste their time playing golf....
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
So if we have an RRSP that was started in 1994, do we have to elect the deferal from that 1994 on to avoid paying the taxes on the RRSP? Or just go back 6 years (as stated in other posts) and evoke it on the first of those 6 years to avoid paying tax on the RRSP for those previous years? We've always filed the TD since filing US taxes.