I would like confirmation of three US tax issues related to my employer-provided pension plan in Canada. I contribute to this plan and my employer makes additional contributions on my behalf.
1) Employer-paid contributions to my employer's pension plan are considered taxable income for my US taxes (but not in Canada).
2) The earnings in this pension plan are not tax-deferred in the US unless I explicitly elect to defer the taxes under Article XVIII(7) of the US-Canada Tax Treaty.
3) If I failed to make the tax deferral election in previous years, the IRS cannot or will not make an issue of it unless my earnings were greater than US$80K.
Is this all correct?
US tax on pension plan contributions and earnings
Moderator: Mark T Serbinski CA CPA
1. Incorrect. They are fully taxable in both countries.
2. Incorrect. Pensions are automtically deferred.
3. N/A. And there is no forgivenes threshhold for IRS, other than your standard deduction. Even if pension income was entitled to Foreign earned Income exclusion (it isn't) it would still need to be reported and THEN ecluded.
2. Incorrect. Pensions are automtically deferred.
3. N/A. And there is no forgivenes threshhold for IRS, other than your standard deduction. Even if pension income was entitled to Foreign earned Income exclusion (it isn't) it would still need to be reported and THEN ecluded.
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
Soryy for the misunderstanding. I mistook Q1 as meaning the income FROM employer contributions, you were meaning the contributions themselves.
So, to retrace.
1. Such employer contributions are NOT considered income in either US or Canada.
So, to retrace.
1. Such employer contributions are NOT considered income in either US or Canada.
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
Thanks, I was starting to get very alarmed!
I'm glad we agree that employer contributions to a pension plan are not taxable in Canada. However, for US tax purposes it seems a little more unclear. IRS publication 525 states that "employer's contributions to a qualified retirement plan for you are not included in income at the time contributed". However, it also says "If your employer pays into a nonqualified plan for you, you generally must include the contirbutions in your income as wages for the tax year in which the contributions were made". So it depends on whether the plan is qualified or nonqualified. Can a Canadian plan be qualified? I've had one tax accountant state to me that my employer's plan is not qualified.
I'm glad we agree that employer contributions to a pension plan are not taxable in Canada. However, for US tax purposes it seems a little more unclear. IRS publication 525 states that "employer's contributions to a qualified retirement plan for you are not included in income at the time contributed". However, it also says "If your employer pays into a nonqualified plan for you, you generally must include the contirbutions in your income as wages for the tax year in which the contributions were made". So it depends on whether the plan is qualified or nonqualified. Can a Canadian plan be qualified? I've had one tax accountant state to me that my employer's plan is not qualified.
It is qualified. Now there has been some debate, in 2003, whether RPP needed to be reported (by the individual on Form 3520, not the trustee), but this was not an issue of whether there would be tax or not, just that the existence had to be reported.
This issue has gone away. with clarification that reporting only required for RRS
This issue has gone away. with clarification that reporting only required for RRS
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 would suggest you ask him for documentation.
We are 100's of people living in US most of us with CDn pensions. None of us are being taxed on them. This is not the only cross-border commiunity which I monitor either.
There are only 4 'specialists' in the world that I would believe, and most of us make mistakes, too.
But, I will try to give YOU proof, which I trust will share with your specialist.
Stay tuned...
We are 100's of people living in US most of us with CDn pensions. None of us are being taxed on them. This is not the only cross-border commiunity which I monitor either.
There are only 4 'specialists' in the world that I would believe, and most of us make mistakes, too.
But, I will try to give YOU proof, which I trust will share with your specialist.
Stay tuned...
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
[quote]3. A new paragraph 7 shall be added to Article XVIII (Pensions and Annuities) of the Convention
as follows:
“7. A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust,
company, organization or other arrangement that is a resident of the other Contracting State, generally
exempt from income taxation in that other State and operated exclusively to provide pension, retirement
or employee benefits may elect to defer taxation in the first-mentioned State, under rules established by
the competent authority of that State, with respect to any income accrued in the plan but not distributed
by the plan, until such time as and to the extent that a distribution is made from the plan or any plan
substituted therefor.â€
Current rules are no need for reporting, and full taxation at withdrawal, in both countries.[/quote]
The text is seemingly clear except for two points:
1) When it says "may elect to defer taxation", does this require a specific declaration of election (eg. Form 8833)?
2) What is covered by "under rules established by the competent authority of that State"? This sounds like an invitation for the US to establish specific rules that may or may not apply in a particular case.
as follows:
“7. A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust,
company, organization or other arrangement that is a resident of the other Contracting State, generally
exempt from income taxation in that other State and operated exclusively to provide pension, retirement
or employee benefits may elect to defer taxation in the first-mentioned State, under rules established by
the competent authority of that State, with respect to any income accrued in the plan but not distributed
by the plan, until such time as and to the extent that a distribution is made from the plan or any plan
substituted therefor.â€
Current rules are no need for reporting, and full taxation at withdrawal, in both countries.[/quote]
The text is seemingly clear except for two points:
1) When it says "may elect to defer taxation", does this require a specific declaration of election (eg. Form 8833)?
2) What is covered by "under rules established by the competent authority of that State"? This sounds like an invitation for the US to establish specific rules that may or may not apply in a particular case.
The treaty allows for rules. CRA has no rules. IRS has rules only for RRSPs. Rev Proc 2002-23 included RPPs, but that has been dropped.
Employer contributions are not taxable in the year they are paid to the account.
Employer contributions are not taxable in the year they are paid to the account.
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
RP 2002-23 claims to contain the governing US rules on doing treaty elections under Article XVIII(7).
When I read Rev Proc 2002-23, it clearly states that the election to defer US tax only applies to income accrued in the eligible plan and not to contributions to the plan (RP 2002-23, Sec. 3). And it also specified registered pension plans by name.
So under those rules, employer contributions to an RPP were not eligible for tax deferral. So what I was originally told by my tax pro seems to be backed up by the wording of RP 2002-23---I could use Article XVIII(7) to defer tax on earnings to the plan, but not on employer contributions to the plan.
However, your latest post indicates that RPPs have been dropped from 2002-23. Can you point me to a bulletin or document showing where and how the rules were changed? Did a new Rev Proc supercede 2002-23?
When I read Rev Proc 2002-23, it clearly states that the election to defer US tax only applies to income accrued in the eligible plan and not to contributions to the plan (RP 2002-23, Sec. 3). And it also specified registered pension plans by name.
So under those rules, employer contributions to an RPP were not eligible for tax deferral. So what I was originally told by my tax pro seems to be backed up by the wording of RP 2002-23---I could use Article XVIII(7) to defer tax on earnings to the plan, but not on employer contributions to the plan.
However, your latest post indicates that RPPs have been dropped from 2002-23. Can you point me to a bulletin or document showing where and how the rules were changed? Did a new Rev Proc supercede 2002-23?