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
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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:
XXXXXXXXXx wrote
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
xxxxxxxxx
========================================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.
Thanks
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" <[email protected]>
Dear xxxxxxxxxxxxxxThank 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 www.sanofi-aventis.ca.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 [email protected].Sincerely,Sara WinnettClient Service Correspondent(416) 964-0660 or 1-800-265-6424, ext. 3358Account Access now available at www.mrs.com
From: ]
Sent: Monday, July 16, 2007 5:37 PM
To: MRS Correspondence
Subject: RE: locked-in RRSP redemptionRegarding 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.
Thanks
xxxxxxxxxxxx
From: "MRS Correspondence" <[email protected]>
To: "
Subject: RE: locked-in RRSP redemption
Date: Mon, 16 Jul 2007 16:56:06 -0400
Dear xxxxxxxxxxxxThank 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 [email protected].Sincerely,Sara WinnettClient Service Correspondent(416) 964-0660 or 1-800-265-6424, ext. 3358Account Access now available at www.mrs.com-----Original Message-----
From:
Sent: Monday, July 16, 2007 3:39 PM
To: MRS Correspondence
Subject: Re: locked-in RRSP redemptionSir,
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?
yours,
xxxxxxxxxxxx
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