face=Arial color=#000000 size=2>----------------------------------------------------------I am a Canadian citizen and legal US resident. I've lived in Florida for 25 years and now, at 65, I'm considering taking distributions from a spousal RRSP with Royal Bank.Unfortunately, income tax information I've received from different sources is terribly conflicting and, at worst, indicates that my nest egg will be gobbled up by governments. Is this something you can steer me straight on?
david ingram replies:
If you roll the RRSP into an RRIF (Registered retirement investment Fund), The payer will have to deduct 15% non resident withholding tax under the terms of Article XVIII of the US . Canada Income Tax Convention (Treaty).
You will then report it again on form 8891 of your 1040 and there may or may not be US tax to pay. If your income is high enough that youare in a federal 28% tax rate, there 'will' be tax to pay on the RRIF.
You will claim the 15% tax paid to Canada on US form 1116.
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Now, you have been supposed to report the existence of that account to the Department of the Treasury in Detroit on form TDF 90-22.1 since 1989 when that law was passed and shown in bulletin 89-45. Failure to report can be a penalty of a minimum of $10,000 to a maximum of $500,000 PLUS up to 5 years in jail for each year you did not report it. See the bottom question on schedule B of your 1040 where your foreign trust requires the preparing and filing of a 3520.
Thankfully, you do NOT have to do a 3520. the 8891 takes it place and is much easier.
The penalty for not also reporting the RRSP and its internal earnings to the IRS (it was the Dept of Treasury above) is 35% of the principal plus 5% for each year it was not reported since 1989 when the reporting rules started. The form 8891 is an exemption for paying the tax on those internal earnings.
RELIEF
Although i know of over 1,000 people who have paid $10,000 fines for not filing form TDF 90-22.1, I (at this time) do not know personally of a single individual who has been fined under the 8891 / 3520 rules. I also have NEVER seen a person fined for filing the TDF 90-22.1 forms late and voluntarily.
In my opinion, you should file the TDF 90-22.1 forms retroactively for six years.to the Department of the Treasury.
You should file retroactive 8891 forms with a 1040X to the IRS for the same years. Note that you are the BENEFICIARY so follow the Beneficiary rules. The 8891 form is actually only 3 years old. Before that, you just wrote out the information on a free form page but it is a convenient form to use retroactively.
Hope this helps and we would be glad to assist if needed.
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This is not intended to be definitive but in
general I am quoting $900 to $2,900 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.
$1,100 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
$2,900 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 $175.00 up.
With a Rental for $375
A Business for $375 - Rental and business likely
$500
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 $800 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 will be $150 to $500.00 depending upon numbers of bank accounts, RRSP's, existence of rental houses, etc.
Just a guideline not etched in stone.
This from "ask an income trusts tax and immigration expert"
from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily
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