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Sent: Tuesday, September 09, 2003 8:48 AM
To: [email protected]
Subject: Canadian Citizen in Australia about to move to the USA
Hi, I am a Canadian citizen and became a resident of Australia in January, 2002. My principal asset is my Canadian RRSP which has large uncrystalized stock capital gains and 25% cash.
I will be going on a 3 month round the world trip starting in Feb/2004, then will land in the USA in New York City where I will live for about a year before likely returning to Canada.
I have filed a 2001 Canadian tax return as a Canadian resident but with my address established in Australia.
Q1. I have withdrawn funds from my RRSP that have attracted 15% Canadian witholding tax and may withdraw more. I also have employment income in Australia and wonder if I can offset my Australian income tax with the Canadian 15% witholding tax.
Q2. Once I leave Australia and cease to be a resident, and before entering the USA, I plan to crystalize the stock capital gain inside my RRSP. Will there be any capital gain tax liability in Australia or in the USA?
cheers,
Garry
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david ingram replies:
As a non-resident of Canada, the RRSP withdrawals should have attracted 25% withholding tax Unless you invoked Article 21(3) of the Canada Australia Income Tax Treaty.
Article 21
Income not Expressly Mentioned
1. Subject to the provisions of paragraph 2, items of income of a resident of one of the Contracting States which are not expressly mentioned in the foregoing Articles of this Convention shall be taxable only in that Contracting State.
2. However, if such income is derived by a resident of one of the Contracting States from sources in the other Contracting State, such income may also be taxed in the Contracting State in which it arises and, subject to paragraph 3, according to the law of that State.
3. Where the income is income derived from an estate or trust resident in Canada by a resident of Australia the Canadian tax on that income shall not exceed 15 per cent of the gross amount of the income if it is subject to tax in Australia.
This article was NOT amended by the new protocols signed on Jan 23, 2002
You can find the whole treaty at http://www.fin.gc.ca/treaties/austral_e.html
You must have used a Canadian address when you withdrew the funds. You should send the bank or trust company 10% back and ask for an NR4 slip to report the income to the CCRA.
Otherwise you are leaving yourself open to the CCRA taxing you on your Australian Income plus the RRSP which will leave you in a higher tax bracket on the RRSP than the 25% because they might consider you a resident of Canada. Goto www.centa.com and click on [us/canada tax] on the left. Although this section deals mostly with the US and Canada, pay attention to "when" Canada taxes people out of the country and in particular, pay attention to the Judge Teskey decision in the Dennis Lee case.
When you report the Canadaian RRSP on your Australian return, you may use the 15% or the 25% tax paid to Canada to offset Australian tax on the internal earnings of the RRSP because Australia also wants to tax you (as the US does) on the internal earnings of the RRSP while you are in Australia.
Therefore, Australia will want to tax you on any internal earnings of capital gains on the RRSP if you intend to crystalize the earnings before entering the US. think three times before doing a crystallization.
david ingram
I am also sending this to the "board" to see if anyone has a contrary opinion. One Canadian member in Australia paid a large penalty on his Canadian RRSP accounts in Australia and he may want to comment. Over to you BB!
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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