tax on US stock in Canadian RRSP - 8891 - TDF 90-22.1 -



QUESTION:
I am a Canadian Permanent Resident living and working in Vancouver.

Since the CRA lifted the 30% limit of foreign assets in RRSP, I opened an account with a Canadian Broker and have created an all ETF portfolio with US stocks in my RRSP. All my high dividend paying Canadian ETFs are in non-RRSP account. My question is related to taxation in such scenario. Do I report my dividend and interest incomes from my All USD Stocks in RRSP accounts to US and pay tax there and claim foreign tax credit in Canada (because US doesn't approve of our RRSPs as non-taxable accounts in US)? I am asking because since it will be growing tax-free in RRSP I won't be reporting any dividend, interest or capital gains income in Canada, and hence won't be paying any tax in Canada on that at all.

I do file 1040NR every year, as I do own a rental property in US (in Texas) so need to file US taxes anyways. 2008 will be the first year when there will be any US stocks involved in my tax returns. 

How do the new rules regarding holding USD in RRSP have any effect in taxes in both US and Canada, as brokers like Questrade, convert USD to CAD all the time whenever I buy or sell any stock in their RRSP account?

Thanks in advance.


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david ingram replies:

If you are a US citizen you have to file form 8891 to report and exempt the internal earnings of your RRSP.  If you are a US citizen, you are filing the wrong tax return because you should be filing form 1040, NOT 1040NR. If you are a US citizen, you have to report your world wide income on that 1040.  Goto www.centa.com and read the October 1995 newsletter in the top left hand corner. Pay particular attention to the rules for the T D F 90-22.1

If you are not a US citizen, you do not need to do anything for the US about your RRSP.

A big disadvantage to owning US stocks in your RRSP is that the broker should be withholding 15% tax on any dividends you are receiving.  In an RRSP, this is lost forever.
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SUGGESTED PRICE GUIDELINES - May 17, 2008

david ingram's US / Canada Services
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Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
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. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
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. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

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.
 






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