Tax on cashing out LIRA -

I have ended employment with a company with which I've worked both in Canada and the US. I want to use my option to have my Canada pension transferred to a LIRA. I'd then like to unlock the LIRA which I understand means removing the money from any of the deferred tax vehicles. I am currently resident in the US and earning income from another company. Am I correct that 25% Canadian withholding applies, or is there a 15% treaty rate that applies? Do I have to cash out the LIRA immediately, or can I wait a few years when I may have no earned income - will this make any difference to the tax I pay? Do you have any advice or better courses of action for someone in my situation to reduce the tax owed? Regards, XXXXX -------------------------------------------------------------------------
david ingram replies:

You can roll your pension into a LIRA and depending upon where you live may be able to unlock the whole thing as a non-resident and / or some of it under the new legislation.

As a non-resident, the financial institution will have to withhold 25% tax on the amount you withdraw. 

If you roll it into an RRIF, the tax withheld by Canada is 15%.  You must also report this as taxable income on your UR 1040.  If you are in a higher tax bracket than 15% or 28%, you will have some more tax to pay on the taxable portion on your US 1040 and state return if you are in a taxable state.

As a US resident, you must report the internal earnings of the LIRA on form 8891 (this also exempts the earnings) on your tax return and its existence to the Department of the Treasury on form TDF 90-22.1  - BIG fines for failure to file these forms.

If you live in California, California taxes the internal earnings on an annual basis without honoring the exemption on Federal Form 8891.

You therefore have to keep track of the value when you entered the US and its earnings to reduce future US tax when you actually cash the plan in.

This older series will help a bit:


RRSP Redemption and taxes
david ingram replies:

I have no idea what the question is but this is likely the answer

My wife (57) and I (61), now living in Michigan, both have small RRSPs from our years of working in Canada. Previously I was told that I could do nothing with the money, not move it to an RRIF or even move it within the family of the Investment Company. Now I'm told I may be able to withdraw it in increments of less than 5k for a 10% withholding. If this is possible what are benefits/drawbacks of withdrawing now vs. waiting till retirement? Also, I'm unsure about reporting requirements; I've only just heard about form 8891.
david ingram replies;

Dealing with a Canadian RRSP has become much easier over the years.

You have been dealing with people who are inexperienced in dealing with non-residents of Canada who live in the USA.

The minimum/maximum tax for you to pay on the withdrawal is 25%.  If you roll it into a RRIF, the withholding is 15% under Article XVIII of the US Income Tax treaty.

You should have been filling out form 8891 or its equivalent under 89-45 since 1989.  Thankfully, the IRS and treasury have not been enforcing the onerous penalties associated  with non-reporting  (35% of the principal PLUS 5% per  year of non-reporting for the 8891 or equivalent and up to $500,000  PLUS up to 5 years in jail for failure to  file form T DF 90-22.1 .

See this older answer
This is not the result of a question but is the result of an IRS Tele-conference on June 20, 2007. 

The subject was the reporting of foreign bank on form T D F 90-22.1.

In particular, the tele-conference made the point that  June 30th  "IS" the deadline and that fines are being increased and in particular, there are / will be severe penalties for non-compliance.

It would seem that there is NOW a $10,000 penalty for failure to file the form although that is in the regulations and not on the form.

I know from other sources that some 1,000 clients of former advisor Jerome Schneider are in the process of  being fined as I write this.

I also admit that I have not worried much about the June 30th filing date in the past.

However, the teleconference made the point that practitioners are subject to fine for not following up on these filings.

As I write this Terry or Phyllis ?? is making it very clear that RRSP accounts must be reported but that the Company Pension does not have to be reported.

So--- if you have not being reporting your foreign accounts - report now.

AND, they also made the point that everyone with foreign accounts MUST file schedule B, even if there is no earnings form the accounts.

AND, they also made the closing  remark that if they have NOT been filed in the past, taxpayers should file back SIX years.
.And this other Q& A

QUESTION: Can you please suggest a US source (expert)for assistance (direction) to transfer a Canadian LIRA tax free if possible into a US RIA. The owner is now a US resident with green card who will ultimately retire in the US. Many thanks
david ingram replies:

It cannot be done.  You can transfer a US  IRA (Independent Retirement Account) to an RRSP but can not transfer a Canadian LIRA (locked in retirement account) to an IRA.

If the plan was registered in Alberta or BC, you can apply to withdraw it with the payment of 25% income tax to Canada.  I also understand that Ontario is close to passing the same  legislation.


Hi David,

You may remember that we spoke a few weeks ago about trying to unlock a locked in RRSP as a foreign resident.  Well, we finally unlocked it and got the funds and I wanted to thank you for helping.  It took some perseverance but it paid off.

Something you may want to warn people about is the amount of tax withheld.  As a foreign resident I am not entitled to a "personal exemption" but I pay 25% flat tax rate.  When the switch was made,  MRS withheld more than that and I caught it.  This is not the first time this has happened to me and it also happened when my husband closed his RRSP account.  The extra 4% or so can make a huge difference!

Thanks again for your help.

All the best,

xxxxxxxxx, Mexico


david ingram replies

It is unusual for them to withhold too much.  Usually, particularly with smaller amounts, they withhold too little and the taxpayer is hit with a bill at the end of the year.

25% is the fixed withholding for a non-resident of Canada.  If they do withhold too much, one can file a tax return and get the difference back.

It is also not unusual to be turned down at first.

The following person was turned down as well but Dan Walkow of Seabank Capital managed to free it up for the person (who is not a client) and he sent me the following at the end of a long comment about green cards.

( Dan Walkow
Seabank Financial
White Rock
Local     (604) 541-9952
L D        (866) 541-9952

P.S.  The two year out of Canada residency with respect to LIRA's did apply to me.


Hi David

I have a telephone apt for 9:30 Wed. morning regarding trying to find a creative way to unlock my locked in RRSP.  The following is a response which I got from MRS as to why they can not do if for me.  Although the fund was registered in Ontario,  before I became a foreign resident in Mexico, I had always lived in Alberta and should therefore I wonder if i should not be subject to Alberta regulations, not Ontario.  If this is mission impossible then I guess I will have to accept it but if you can in fact find a creative way to open the account I would like to engage your service.


david ingram replies:
I have no method of removing an Ontario LIRA from the account as a non-resident.

Alberta and BC yes, but Ontario has not passed legislation to make it happen.

It is expected to happen but has not happened yet.  One of my newsletters implied that Ontario was okay but that was premature or wishful thinking as the legislation did not get passed with a change in government.

Your only solution is to have the company designate it Alberta somehow but that is unlikely because the pensions are usually designated to be at a company's head office..  However, A letter confirming your employment in Alberta all those years might walk through the paperwork with Revenue Canada.  Since they seem to be able to deal with its existence in Ontario, even though it is now in Quebec, it just might work.

The Province of Alberta would also need to agree. 

If your research about Ontario plans was from my site alone I apologize. I was not alone though.  For a few months in 2006, a lot of us thought it had happened.

david ingram

From: "MRS Correspondence" <>

Dear xxxxxxxxxxxxxx
Thank you for your reply and we apologize for the delay in our response.
Money within locked-in plans originated from registered pension plans, and as a result, these types of accounts are regulated by pension legislation.  The legislation places restrictions on redemptions from such accounts.  Provinces have their own laws and regulations that govern pensions registered with their provincial pension regulator
We have been in contact with your former employer.  They have advised this locked-in plan was established with Merrell Dow under Ontario legislation. Following corporate restructuring the company became known as Marion Merrell Dow Canada, based in Laval, QC. As part of this restructuring, they were converting plans to Quebec legislation, however, they indicate this process was not complete at the time of your departure from the company in 1995, thus the initial designation under Ontario legislation would be accurate.
Under Ontario pension legislation, there is no provision for the unlocking of funds due to non-residency.
For further information, you may wish to contact your former employer, now known as Hoechst Marion Roussel and still based at the same address in Laval, QC.  Their website can be found at
We also recommend that you consult with your Financial Advisor xxxxxxxxxxx  in Victoria, BC, at xxxxxxxxxxx.
Should you have any questions or concerns, or if we can be of further assistance, please e-mail us at
Sara Winnett
Client Service Correspondent
(416) 964-0660 or 1-800-265-6424, ext. 3358
Account Access now available at


From: ]
Sent: Monday, July 16, 2007 5:37 PM
To: MRS Correspondence
Subject: RE: locked-in RRSP redemption

Regarding my locked-in RRSP

I am somewhat confused as to the logic regarding your inability to

 From the research I have done there are 3 provinces which allow the funds to be unlocked.  Alberta, BC and Ontario.  I was a resident of Alberta all my life, before retiring to Mexico in 1999. 

The company which I worked for had is head office in PQ.,  so first I do not understand how my RRSP originated in Ontario ad eve if it did, what about the Alberta residency? 

If I were to choose to have a monthly pay out from this fund would I not be subject to the flat 25% withholding tax and not be entitled to the $6,000 (0r whatever) personal exemption.  How can it be that on one had I am being treated as a foreign resident but on the other am subject provincial regulations regarding my money?  Could you or someone please explain this to me.



From: "MRS Correspondence" <>
To: "
Subject: RE: locked-in RRSP redemption
Date: Mon, 16 Jul 2007 16:56:06 -0400

Dear xxxxxxxxxxxx
Thank you for your e-mail regarding your M.R.S. RRSP #29xxxxx.
A check of our records indicates this plan is locked-in under Ontario pension legislation.  Under that legislation, it is not possible to apply as a non-resident to unlock the funds, and therefore we would not be able to process the request.
A notice on this issue was sent by fax on June 12, 2007, to the office of your Financial Advisor on file, xxxxxxxxxxxxxxxxx. Should you have any questions or concerns, or if we can be of further assistance, please contact Client Services at 1-800-387-2087, or e-mail us at
Sara Winnett
Client Service Correspondent
(416) 964-0660 or 1-800-265-6424, ext. 3358
Account Access now available at

-----Original Message-----
Sent: Monday, July 16, 2007 3:39 PM
To: MRS Correspondence
Subject: Re: locked-in RRSP redemption


I have a SDLRSP with MRS plan number 29xxxxxxxx. xxxxxxxxs xxxxx Financial services Inc. suggested I deal directly with you.  For eight years I have lived outside of Canada and am officially a foreign resident.  I believe that the Plan was registered in PQ (company head office) but I was a resident of Alberta throughout my working life.  I wish to cash out my SDLRSP.  What do you need from me to facilitate this?





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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.


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