Withdrawing RRSP as a non-resident - international non-resident cross border income tax expert help from david ingram

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xxxxxxxxxxxxxx wrote:
Hello, Mr. Ingram,
I got an NR4 from TD due to my RRSP withdrawal in 2007.  I just want to confirm that I do not need to file Canadian income tax.  25% tax was withheld by TD from my total RRSP.
Thanks and best regards,

david ingram replies:

You do not need to file a Canadian return if 25% was withheld.  However, part of the RRSP withdrawal is taxable on the US return.

Use form 8891 to calculate the amount which is taxable on 16b - the gross amount goes on 16a.

Hint - the amount which is taxable is the increase in value since you moved to the USA.

The older Q & A follows:

Sent: Sunday, February 18, 2007 2:39 PM
To: [email protected]
Subject: FW: Re: Withdrawing RRSP

Hello, Mr. Ingram,

I was planning to withdraw my RRSP because it is not making that much money in Canada.  I have other investment ideas and I can use the money here in the US.  As per you info, the tax withheld is 25%.  TD will be charging me 30% as the RRSP value is over $15,000.  TD is also saying that I have to claim the funds withdrawn as income for 2007.  I thought I do not need to file a Canadian Income Tax.  I also thought that I only need to declare in my US tax return the meager RRSP earning from the date that I left Canada (May 2003) to the time that I withdraw the RRSP.

Your thoughts, please.

Thank you.


>From: [email protected]
>To: [email protected]
>Subject: Re: Withdrawing RRSP
>Date: Sun, 18 Feb 2007 09:30:59 -0500
>Hello ssssssssssssss,
>I appreciate your interest in redeeming from your RSP account. Thank you for taking the time to write.
>There is some important information that you should be aware of when considering a redemption from your RSP. If your RSP has been open for less than 6 months, the fee is $100.00 per withdrawal.

For RRSPs opened more than 6 months, the fee is $50.00 per withdrawal. This is not related to the funds that you hold, but is only based on the age of the RSP account.
>Depending on how much you withdraw from your RSP, the withholding tax will vary. The Withholding Tax for all Provinces except Quebec is as follows:
>Withholding Tax Rate    Gross Withdrawal
>10%                             Up to $5,000
>20%                     Between $5,000 and $15,000
>30%                     $15,000.01 and over
>We would recommend that you exhaust all other avenues of finance prior to making a decision to redeem from your RSP, as your RSP is designed for retirement purposes and the fees and taxes may make it less attractive to withdrawal. You'll also have to claim the funds withdrawn as income for the current year.
>Please note as well that all RSP redemptions must be claimed on your income tax as part of your income.
>If you do need to complete a redemption, you can do so by calling EasyLine at 1-866-222-3456, available 24 hours everyday, and request the redemption through a representative. They would be happy to help.
>Concerning your tax related questions and statement, I'd recommend that you also contact the Canada Revenue Agency for further assistance:
>I hope this direction is helpful. Thank you once again for writing.
>Best regards,
>Chris T.
>Internet Correspondence Representative
>TD Canada Trust 1-866-222-3456
>Email: [email protected]
>TDD (Telephone Device for the Deaf) 1-800-361-1180 (toll free)
>This email is directed to, and intended for the exclusive use of, the
>addressee indicated above. TD Canada Trust endeavors to provide accurate and up-to-date information relating to its products and services. However, please note that rates, fees and information are subject to change.
david ingram replies:

As a non-resident of Canada, the withholding on your RRSP is 25% of the gross withdrawal whether you take out $5,000 or $500,000.  The Canada Trust directive you received is in error about the withholding rate but I expect it is a form letter and does not reflect your non-resident status.

The Canada Trust directive is also in error about the necessity to file a Canadian return.  When the 25% is withheld, Canada Trust should issue a T4RSP-NR showing the gross withdrawal and the 25% withholding.

This is the end of your tax filing responsibility to Canada unless the CRA specifically asked you for a world wide income statement which they can do. If they were to make such a request, you would report your world wide income and deduct it all on Line 256 of the T1 under Article IV of the US/Canada Income Tax Convention (Treaty).

For the US, the amount that is taxable on your US 1040 and your New Jersey or New York tax return is the difference between the RRSP's value on the day you left Canada and the day you cash it in.

Against that profit, you will be able to claim the pro-rata basis of the 25% tax paid to Canada as a foreign tax credit on form 1116.

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