Another RRSP goes bye bye

[KevandKiki2 0]

Well I had to cash in an RRSP awhile back and on a 2000 dollar RSP I netted 1475.00

This is because of the standard 25 per cent bank holding for the Government and then to add insult..a 25.00 processing fee.

Any canucks do it a different way and save some money? I doubt it can be done but thought I would ask..

Best,

Kev

[Flames9_RN 358]

Not exactly sure but it is covered at http://forums.serbinski.com/index.php?sid=...69e26b292b2d1cc

I may have read somewhere that you can claim some of it back on the USA taxes. Best of luck

[ceriserose 1]

Not exactly sure but it is covered at http://forums.serbinski.com/index.php?sid=...69e26b292b2d1cc

I may have read somewhere that you can claim some of it back on the USA taxes. Best of luck

From what I understand you can claim it as a foreign tax credit on the US taxes you do for 2006 (the year you withdrew them). It helps a little. (I have one I withdrew in December 2005 so once we file taxes, I'll post how it worked out. We're playing with different ways to file...mostly avoiding the whole thing, really.

[KevandKiki2 0]

Yea I have a background in business and I can't make heads or tails of this years taxes..Have to go somewhere that does international or use a CPA...

Thanks for the input folks..

Best,

Kev

[Brunette 0]

The bank just finished calling me about reinvesting my RRSPs. Well I told her I'm going to be withdrawing them because I'm moving permanently to the states. She said now is the best time to withdraw and I will get it all back minus 10%. I thought it was better to withdraw after immigrating and just being charged a 25% non with-holding tax as I could recover that tax if I didn't make enough in 2006? Can anyone help clarify things here?

Edited March 16, 2006 by Brunette

[Texanadian 10]

Withdrawing it now means THE BANK will only deduct 10% and forward that to the CRA.....at the end of the year, you will add it to your Canadian resident income and then pay the additional federal and provincial tax. From then on, you can't do anything with it on the US side.

Withdrawing it after immigrating, you'll do the 25% flat withdraw rate, but won't have to add it to your Cdn taxes at the end of the year (the 25% at source satisfies all the tax requirements in Canada). There is no provincial tax this way. Just federal. And that 25% will pay for everything. Then you do the US foreign tax credit with this later on. If your income is small enough, you can get some or all of that 25% back using the section 217 with the CRA.

If your RRSP is in mutual funds, don't forget to change mutual fund plans before moving from Canada. That way any Capital Gains you would owe to the US are based on the date you changed them to the new fund (maybe a month's worth or less between the change and when you withdraw them).

Edited March 17, 2006 by Texanadian

[Brunette 0]

Thanks Texanadian....that was a great simple explanation! It definately makes sense to withdraw after immigrating.

[Waiting in Vancouver 6]

Withdrawing it now means THE BANK will only deduct 10% and forward that to the CRA.....at the end of the year, you will add it to your Canadian resident income and then pay the additional federal and provincial tax. From then on, you can't do anything with it on the US side.

Withdrawing it after immigrating, you'll do the 25% flat withdraw rate, but won't have to add it to your Cdn taxes at the end of the year (the 25% at source satisfies all the tax requirements in Canada). There is no provincial tax this way. Just federal. And that 25% will pay for everything. Then you do the US foreign tax credit with this later on. If your income is small enough, you can get some or all of that 25% back using the section 217 with the CRA.

If your RRSP is in mutual funds, don't forget to change mutual fund plans before moving from Canada. That way any Capital Gains you would owe to the US are based on the date you changed them to the new fund (maybe a month's worth or less between the change and when you withdraw them).

I have about $9000.00 CDN in RRSPs and I an planning on cashing them in ... I am trying to figure out what I should be doing ....

Is it better to cash in the RRSPs after your move to the USA ?? If so how do you accomplish this ??

Or is it better to cash in the RRSPs up here in Canada before I leave ??

[Texanadian 10]

Waiting in Vancouver, I'm in a similar boat. I'm waiting on Vancouver Island with about 18K in RRSP's.

What I plan on doing is telling my bank and my investment guy to withdraw the money for me about a week after I move. And also to have them take the 25% off.

Since my bank RRSP's are simple compound interest over xx years, they're relatively simple.

My investment RRSP's as far as I know are safe from capital gains as long as they are in RRSP form. But I will change them from their current equity funds to a new equity fund before I move. Say from Canadian Equity funds to British Equity funds for example. Any capital gains that do or don't happen will be only dealt with on the Canadian side. (I think you can get dinged on capital gains on both the 25% non resident and the 15% cap gains tax in the USA, not exactly sure)

So I cross the border as an immigrant and a few days later, the bank and investment company will withdraw my money, take the 25% and I'll have access to the rest. I haven't looked at the US IRS income tax forms involved with the whole foreign tax credit thing yet. Been putting that off for awhile. Since I changed my mutual funds from Canadian to British, my capital gains in the USA will be pennies (since I've only owned British equity for 3 weeks or so)

Being in British Columbia, the tax thing is a bit trickier. If you make 25,000/year or less, you should be able to withdraw the $9,000 before leaving and still be in the bottom tax bracket (up to around 35K). The bottom tax bracket would be 6.05% BC and 16% Fed, so 22.5%. This would be easier than paying the 25% and then doing the US foreign tax credit routine. I'd have to see how much the foreign tax credit saves you (and myself for that matter). If you lived in Alberta, it would be easier. They have 10% and 16% brackets to deal with. So it's definately going to be cheaper to withdraw the money after immigrating from there.

With a number like $9,000, it puts you in a good position for the section 217. With that, if your WORLD income (Cdn job + RRSP + US job) totals less than $20,000, I believe you can file to get some or all of the 25% non resident tax given back. This works good for people who immigrate and then don't work, become stay at home husband/wives. If you make $8K/year I think you get all the 25% back. I really need to look into the section 217 to get things cleared up completely.

To stay below the $20K limit, you could withdraw maybe half of your RRSP if need be. Trouble is, after taking 25%, then taking off another 15-20% for the exchange rate, it doesn't leave you with as much as you thought. Factor in a few months of not being legally allowed to work in the US and I hope your spouse has a good job to help you through those first few months.

Not sure if this helps or just confuses more.

The bank just finished calling me about reinvesting my RRSPs. Well I told her I'm going to be withdrawing them because I'm moving permanently to the states. She said now is the best time to withdraw and I will get it all back minus 10%. I thought it was better to withdraw after immigrating and just being charged a 25% non with-holding tax as I could recover that tax if I didn't make enough in 2006? Can anyone help clarify things here?

I think the bank is making a similar mistake to what my investor guy thought. Both of them are used to thinking of taxes in the Canadian resident style.

When I told my investor that I would be having him take 25% off, he thought that was just an at source deal and that I would have to add it up at the end of the year and then pay tax on it. His recommendation was to withdraw it in Canada, pay the 10% now and then not have to pay the government for a year (or until tax season starts).

What he wasn't getting was that the 25% is the whole thing all in 1 step.

[Reba 2]

you will also want to check what the tax credit (if any) is available in the state you are moving to.

Last year (2005) I cashed in my RRSP at the non-resident 25% flat rate thinking "great, Canada will take the taxes off, I won't have to worry about being double dinged with the US". Apparently I, and my advdisor in Canada, were wrong I just had my taxes done and the State wants me to pay them $2000.

H&R Block is trying to figure a way around it, but so far it seems that the State is not party to the tax treaty between the 2 countries. So, while you won't have to pay federal taxes on that RRSP income, you may have to pay state taxes on it.

If you do end up having to pay, make sure you've socked away some of that money.

[Waiting in Vancouver 6]

Texanadian, here is my situation. I made approx. 55K last year ... I expect that I will be leaving Canada around the end of July which puts me about 7 months of working here, which would probably total up to about 32K ... My understanding is if you leave canada partially through a year they still pro-rate (not sure if thats the proper word) you to what you would have made if you had been in Canada for the whole year ... So even though I only made 32K in Canada they would still income tax me as if I made 55K ... Which means I would still have to pay Canada even more income tax for 2006 on the 5 months I wasn't working or living in Canada ??

Now if I also cash in my 9K in RRSPs, doesn't that mean I would be paying income tax on 55K + 9K = 64K without even making a single cent in the USA ??

Head explodes .... Damn I hate the tax system ... It's so darn confusing !!

Edited March 18, 2006 by Waiting in Vancouver

[ceriserose 1]

Texanadian, here is my situation. I made approx. 55K last year ... I expect that I will be leaving Canada around the end of July which puts me about 7 months of working here, which would probably total up to about 32K ... My understanding is if you leave canada partially through a year they still pro-rate (not sure if thats the proper word) you to what you would have made if you had been in Canada for the whole year ... So even though I only made 32K in Canada they would still income tax me as if I made 55K ... Which means I would still have to pay Canada even more income tax for 2006 on the 5 months I wasn't working or living in Canada ??

Now if I also cash in my 9K in RRSPs, doesn't that mean I would be paying income tax on 55K + 9K = 64K without even making a single cent in the USA ??

Head explodes .... Damn I hate the tax system ... It's so darn confusing !!

On the day you leave Canada you are no longer considered a resident for tax purposes, unless you leave vacant property you could return to (renting it out negates that) or if you have spouse and minor children living in Canada while you live in the US. When you leave Canada you are required to inform your financial institution(s) for them to file paperwork with the GOC to declare you a non-resident.

The money you earned in Canada from Jan-July would have had taxes withdrawn 'as normal' on your paycheques, as if you were having a normal, full tax year in Canada. So from that standpoint, yes, you are paying taxes like you would be making $55K but will only make $32K. However, if you were in Canada and had say been laid off in July, you would be in the same situation...and would probably get a refund for the "over" tax. What they income tax you is based on the dollar amount of what you made, not on the months of the year in which you made it.

What they prorate on your taxes is the tax credits...so if you leave Canada in July, the $8600 (or so) in personal tax credit you get to claim is prorated for only the months you physically resided in Canada. HOWEVER, if all of your income for that tax year was from Canadian source, all you have to do is write a letter and send it with your tax return stating that and your credits will not be prorated. (In my case I left Canada July 2005 and didn't work in the US until 2006. I withdrew an RRSP in December 2005 while living in the US. It's all income derived from Canada, and so I can say so in my letter and my credits will not be prorated on my 2005 taxes.)

If you cash in an RRSP while in Canada you will be taxed 10% off the top (for withdrawal amounts $5000 or less; tax goes up if you withdraw more), which happens to every Canadian, and that will need to be declared as income on that year's taxes. If you cash in an RRSP while living in the US, you will be taxed 25% non-resident tax right off the top and you have no further commitment to Canadian income tax on that money after that. However, the $$ will need to be declared as income on your US taxes and the 25% non-resident taxes can be claimed as foreign tax credit on your US taxes.

There are circumstances where you may want to declare that RRSP income (withdrawn while you're in the US) on your Canadian taxes, but since that doesn't apply to you until 2006 (done next year), I don't confuse the matter any more. Have a look at some of the tax discussions in the Canada forum if you're really curious.

The bank just finished calling me about reinvesting my RRSPs. Well I told her I'm going to be withdrawing them because I'm moving permanently to the states. She said now is the best time to withdraw and I will get it all back minus 10%. I thought it was better to withdraw after immigrating and just being charged a 25% non with-holding tax as I could recover that tax if I didn't make enough in 2006? Can anyone help clarify things here?

I think the bank is making a similar mistake to what my investor guy thought. Both of them are used to thinking of taxes in the Canadian resident style.

When I told my investor that I would be having him take 25% off, he thought that was just an at source deal and that I would have to add it up at the end of the year and then pay tax on it. His recommendation was to withdraw it in Canada, pay the 10% now and then not have to pay the government for a year (or until tax season starts).

What he wasn't getting was that the 25% is the whole thing all in 1 step.

This is the thing I keep running into, even with the GOC international tax # where they're really helpful. They can answer questions and give you options, but they can't answer that last question; which way is better to go when you're considering Canadian AND US taxes. I think for me it's a case of a day where Hubby and I sit down and run numbers to see which combination works best for maximum return.

[ceriserose 1]

I said in my above post that they tax over 10% if you withdraw an RRSP valued $5000+ while in Canada. That figure may be $10,000. I just know when I was withdrawing some larger ones I did it in 2 or 3 rounds so that I wasn't paying the additional tax.