Hello!
I've found the information in this forum very useful and I'm hoping to get some further clarification on some information I've read here regarding foreign tax credits. I'll be moving to the US soon as a green card holder.
From my understanding, if I withdraw my RRSP at the 25% withholding tax rate as a non Canadian resident, I can claim the amount as either a credit or a deduction. So for example, if my RRSP was 20k, and the CRA took 5k, I could claim the 5k as a credit or a deduction.
However,
1) for it to be claimed as a credit, it can only be applied towards foreign earned income.
2) For it to be claimed as a deduction, this restriction would not apply.
So if my understanding is correct so far, is it the case that the deduction can only be used in the year that it's withdrawn and can't be carried over for the 10 years that's allowed for credits?
Also one other question, does this withholding tax also apply for locked in retirement accounts? I realize that I'd have to wait 2 years after becoming a non resident in my respective province before I'd be allowed to withdraw from a LIRA.
Thank you in advance!
RRSP withdrawal as non-resident - tax credit vs deduction
Moderator: Mark T Serbinski CA CPA
Pretty accurate.
You can use the tax EITHER as a credit or a deduction. You can only use one method each year. credit as carry forward, deduction does not.
The reason deduction is considered in the case of RRSP is that typically very little of an RRSP is considered taxable income in US, thus very little of the Cdn tax is credited. (the carryforward doesn't usually have much value for most people in your circumstance).
However, remember that the deduction (which as you say doesn't depend on Cdn income reported) is part of your our itemized deductions for that year, and must add up (starting in 2018) to more than 12K for single filers, 24K for married) so the value of that may be gin to diminish.
Also a LIRA is FULLY taxable in US, as opposed to an RRSP, so in that case the credit is better in all cases.
You can use the tax EITHER as a credit or a deduction. You can only use one method each year. credit as carry forward, deduction does not.
The reason deduction is considered in the case of RRSP is that typically very little of an RRSP is considered taxable income in US, thus very little of the Cdn tax is credited. (the carryforward doesn't usually have much value for most people in your circumstance).
However, remember that the deduction (which as you say doesn't depend on Cdn income reported) is part of your our itemized deductions for that year, and must add up (starting in 2018) to more than 12K for single filers, 24K for married) so the value of that may be gin to diminish.
Also a LIRA is FULLY taxable in US, as opposed to an RRSP, so in that case the credit is better in all cases.
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