Withdrawing/Closing RRSPs while a Resident of US - REV-PROC 89-45, 2002-23, 2003-25, 2003-57, 2003-75, 8891 T D F 90-22.1 -


My wife and I are permanent residents of the United States.  We moved in 1996 and still have several RRSPs in Canada.  We have been reporting the deferment of tax on the gains in the RRSP under the tax treaty since 2002
(now with Form 8891). 

In 2007 we closed a couple of small RRSPs, and the Nonresident tax of 25% was deducted at the source.   I have a couple of questions about reporting this income, and trying to avoid being double taxed:

1. Is the taxable amount of income from this withdrawal based on the value when we entered the US.  If so, can I use the number from my reporting in 2002, or do I need to use the value from 1996.  Either way do I need to include a statement proving this value, or simply hold it in my records.

2. To receive credit for the tax I paid Canada on the RRSP withdrawal, do I use form 1116 to claim a foreign tax credit. 

3. Is there any relief from the Canada US Tax treaty.  It seems that funds from pensions, which RRSPs seem to be, should ultimately be taxed at a rate of only 15%

david ingram replies:

1.  Read the form 8891.  And remember or be aware that the same reporting rules have existed since 1989 when IRS REV-PROC 89-45 was introduced.  The part that is taxable is the amount that your RRSP increased in value since the day you immigrated to the USA. Using form 8891, the total amount of the withdrawal from the RRSP goes on line 16a and the taxable amount (the increase in value since 1996 in US dollars) goes on line 16b.  Technically, you were in serious violation from 1996 to 2002.  The official penalty for that violation was 35% of the money in the RRSP plus 5% for every year unreported.  However, to make you feel better, I have never seen that particular penalty enacted. or enforced. You do not mention filing form TDF 90-22.1 however.  That penalty of $10,000 to $500,000 I have seen 1,000 times or more including one $10,000 penalty applied to a 105 year old lady for failure to report her account at the Royal Bank of Canada in Edgement Village in North Vancouver.  See questions 7 and 8 at the bottom of schedule B for the hint about the TDF and 8891 forms.  Note that the 8891 is now the replacement for a Canadian to use instead of the 3520 mentioned.

2.   Yes - the only form you can use is form 1116 on the federal return.  For the state you would use the state's form.  California is 540'S' for instance.

Remember that if you are in California, Form 8891 or its predecessor reporting rules do NOT apply to the state.  If you are in California, annual internal earnings of your Canadian RRSP are taxable as you go but lower the taxable part in the future. 

3.   Why.  If you cash it in the tax is clearly 25% under Canadian tax law when a non-resident cashes in an RRSP.  If you roll it over into a RRIF, then the Canadian tax is only 15% but the US tax is whatever your US marginal tax bracket is.  If you are in a 28% tax bracket at that point, you would pay an extra 13% to the Feds and whatever your state tax is to the State.

You can read the 2002-23, and 2003-25, and 2003-75 bulletins at


2003-57 is at http://www.centa.com/CEN-TAPEDE/2003/august/foreign_general_trust.htm

and a different version of 2002-23 at  http://www.unclefed.com/Tax-Bulls/2002/rp02-23.pdf

This was the answer to a 2003 question

QUESTION: I am a new US citizen as of '03. I moved from Canada in '93 to the US, under a visa/green card. Upon my departure I ceased any further contributions to my Cdn RRSP and opened an IRA. My RRSP has been idle since '93 with no contributions nor disbursements. It's value has dramatically dropped since my departure in '93 but there still remains a balance under $40,000. I would like to close out this account and understand I'll face a 25% Cdn withholding tax (plus the dollar conversion). Will I incur any additional taxes/implications ...AND... does the CDN withholding also dbl as a tax credit towards my US income tax return for the year I close the account?? Flagged by IRS 2003-25. Please help... ==================================== david ingram replies: Your RRSP should have been reported to the IRS REV.PROC 89-45 and to the Department of the treasury on a TDF-90 for the ten years you were in there already. You have quoted the IRS 2004-25 above so you know that there is a very real and very punitive procedure if you are caught as it were. You should amend your 2002 1040 by filing a 1040X and including the REV-PROC 2002-23 (which replaced 89-45 for 2001 and 2002) and file the TDF-90 forms associated with any Canadian accounts including the RRSP. Our policy is to look after these past matters for you for $400.00 Canadian for the first RRSP and $100 per extra RRSP. To do so, we need the Dec 31st 2001 and Dec 31st 2002 year end statements for the RRSP and the details of any other financial accounts you have in Canada. Now that 2002 is looked after, you will need to do essentially the same thing for 2003 and 2004. When you cash in the RRSP in 2004, you will pay the 25% tax to Canada and then report any internal earning on the plan (since you left Canada) to the US and calculate the tax to the US on those earnings. Remember that even if the overall value went down, there were internal dividends or interest paid during those years). To explain that, pretend you bought $10,000 worth of a mutual fund which paid you $700 in dividends. At the end of the year, the fund is only worth $9,000 but you owe tax on the $700.00 worth of dividends. You only realize (get to claim) the $loss when you sell the fund. And in the case I just used as an example, the loss would be $1,700 (not 1,000) because your input was $10,000 plus the reinvested $700 dividend and you sold it for $9,000 which is a $1,700 capital loss. You will likely have an overall loss for US tax purposes from your Canadian RRSP. -----------------------------------------------------------------

On Mar 14, 2008, David Ingram wrote:

It is very unlikely that blind or unexpected email to me will be answered.  I receive anywhere from 100 to 700  unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients.  Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line and get answered first.  I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when I am out of town. 
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However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. For the last two weeks, I have just found out that my own email notes to myself have been spammed out and as an example, as I wrote this on Dec 25, 2007 since June 16th, my 'spammed out' box has 47,941 unread messages, my deleted box has 16645 I have actually looked at and deleted and I have actually answered 1234 email questions for clients and strangers without sending a bill.  I have also put aside 847 messages that I am maybe going to try and answer because they look interesting. -e bankruptcy expert  US Canada Canadian American  Mexican Income Tax service and  help
Therefore, if an email is not answered in 24 to 48 hours, it is likely lost in space.  You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER from 'me', you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321.  david ingram expert  US Canada Canadian American  Mexican Income Tax  service and help.
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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.
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. 

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.
This from "ask an income trusts tax service and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention. Advice on bankruptcy  e bankruptcy expert  US Canada Canadian American  Mexican Income Tax service and help .

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