I recently withdrew my entire RRSP and the 25% non-resident tax was withheld. The taxable portion is approx 50% of the complete withdrawal.
I am now working on my US taxes with TurboTax and have some questions about how to correctly fill out form 1116 for my the US Foreign Tax Credit.
1) On line g-1a, what do I report for gross foreign income? The entire withdrawal (which I reported on 1040 line 16a) or just the taxable portion (reported on 1040, line 16b)?
2) If I report the entire withdrawal as foreign gross income, I have been assuming that you would have to reduce this amount somehow to reflect the actual taxable amount. How is this done? Or is my assumption (hopefully) incorrect?
Thanks.
Filling out Form 1116 for an RRSP Withdrawal
Moderator: Mark T Serbinski CA CPA
1,2) Just the taxable portion. "Gross" in this instance refers to taxable income before any of the deductions related to that specific income (which there are none).
As you see, you will be able to use only a small fraction of the Cdn tax towrds your US tax (my guess is about 1/5th to 1/4 of the Cdn tax). That is how FTC is designed.
Look at using the Cdn tax as a deduction instead. if you foresee no other Cdn general income in you near future (pension or wages), and the deduction yields lower tax, then use it that way.
As you see, you will be able to use only a small fraction of the Cdn tax towrds your US tax (my guess is about 1/5th to 1/4 of the Cdn tax). That is how FTC is designed.
Look at using the Cdn tax as a deduction instead. if you foresee no other Cdn general income in you near future (pension or wages), and the deduction yields lower tax, then use it that way.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
As an exercise, simply do your 1040 without the RRSP.
Now add the RRSP without FTC or anything.
That is how much extra tax you are paying in US. Ugly. Its at your marginal rate
Now apply FTC. It should only reduce your extra US tax by about 1/4 of what was added. Ugly. Its only credited to you at your effective tax rtae, not marginal.
That is one of the problems with waitng to collapse your RRSP until you've been in US for a while, but collapsing it before retirement anyways. The growth of your RRSP ends up being taxed at an exorbitant rate. (25% Cdn plus ~20% IRS plus state rate)
Most would have been better off collpsing soon after arriving, this paying no US tax, or waiting until retirement (or years when they have little income), in order to reduce both the Cdn and US taxrate on the RRSP simultaneously.
You'll probably find the deduction works better, but watch for AMT.
Now add the RRSP without FTC or anything.
That is how much extra tax you are paying in US. Ugly. Its at your marginal rate
Now apply FTC. It should only reduce your extra US tax by about 1/4 of what was added. Ugly. Its only credited to you at your effective tax rtae, not marginal.
That is one of the problems with waitng to collapse your RRSP until you've been in US for a while, but collapsing it before retirement anyways. The growth of your RRSP ends up being taxed at an exorbitant rate. (25% Cdn plus ~20% IRS plus state rate)
Most would have been better off collpsing soon after arriving, this paying no US tax, or waiting until retirement (or years when they have little income), in order to reduce both the Cdn and US taxrate on the RRSP simultaneously.
You'll probably find the deduction works better, but watch for AMT.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing