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QUESTION:
I am a new US citizen as of '03. I moved
from Canada in '93 to the US, under a
visa/greencard. 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 witholding 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 top 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.
My contact numbers are below - we can deal with you be fax, phone, courier or email or even snail mail.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321
[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 & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration 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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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
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