Section 1446 Partnership income ECI witholding in RRSP

[Bubba Gums]

Is 1446 ECI withholding at max rate appropriate in the RRSP of a US citizen? It would seem to me that since the grantor/beneficiary is a US person, then the supplied W-9 would obviate the 39.6% withholding.

Is there a way to claim this withholding as a payment or to recover the withholding?

[nelsona]

We have had issues in the past with RRSPs being improperly withheld (usually for foreign tax withholding on dividends). Its not the absence or presence of a W-9 that removes the tax obligation (after all, a Cdn investment account would have in place the same W-9, but would have US taxes withheld on US dividends).

rather it is Treaty Article XVIII.7 which exempts RRSPs from any US tax withholding arising from transactions within the account. This certainly applies to US dividends paid to RRSPs. I suspect that it also applies to partnership income as well.
Trouble is that the RRSP trustees need to be educated on this).

[Bubba Gums]

I am not so sure that it is exempt from US tax because of the treaty. See for example:

https://www.theglobeandmail.com/globe-i ... le1372575/

I will receive Form 8805 "Foreign Partner's Information Statement of Section 1446 Withholding Tax". This will indicate the income and tax withheld. I would add the income to my 1040 and the withheld tax as a payment on Line 73 referencing the 8805. I would increment my investment in contract in the RRSP by the income I declared. Any thoughts about this approach?

[nelsona]

There you go.

So, your only remedy, as with any US tax withheld from US citizens, is to include it in the tax paid on your 1040, which is an 'advantage' that Cdns don't have since they don't file a 1040. You still don't need to report the partnership income, since it is within the RRSP, so that tax should be refunded.

If a US tax form is issued, I guess a Cdn could technically file a 1040NR, reporting no income, and using the K-1/1099 withholding as tax paid. .


Unfortunately, it does reduce the value of the RRSP

[nelsona]

As to the treatment of your RRSP, as a US citizen, I don't think you get to increase the value of the investment in the contract by this. It isn't a contribution. All it results in is less income to withdraw at the end.

[Bubba Gums]

If I do not report the income (because it is in the RRSP and tax exempt until the rrsp is distributed) how can I transfer the tax recovery back into my RRSP account without it being considered a contribution?

[Bubba Gums]

As an update. The form 8805 was never sent. Nonetheless I included it as a credit on line 74 and included an explanatory statement. IRS sent CP11, but international allowed the credit after I discussed it with them by phone.