La Quinta, CA
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Thursday, March 3, 2016

Reporting RRSP/RRIF Distributions Received on 1040 After 2014

AS OF 2015...... 

RRSP's are a great way for Canadians to save money while deferring income taxes. I love the tax deferral system in Canada!

So what happens if say you save up a bunch of money in an RRSP or RRIF and then decide to head south for retirement? The rules have changed a little as of 2014. This is a good change. No more reporting RRSP distributions on form 8891.

RRSP distributions are reported as taxable pensions & annuities using a form 1040 FEC. The GROSS distribution amount is reported here. There is no more need to use form 8891 though you have to report the RRSP/RRIF account on your FinCen 114 (FBAR) as well as your form 8938 when required.

You will then take a foreign income tax credit form 1116 for foreign passive income and apply the withheld tax that was not refunded to you from the CRA. If the tax credit is not all used up it can carry forward to the next year(s).

So.. Let's say you really don't have much of a worldwide income and your main source of income is coming from Canadian RRSP withdrawals and Canadian pensions. Let's say you were smart and bought a house in the U.S. which is all paid off now and you want to live there full time. Your gross income is only $25,000  from Canadian pensions and distributions between the 2 of you and you have little or no other income.

Does it make sense to pay 15-25% taxes on your Canadian pension only to be told you can apply that to your U.S. taxes as a credit? Your U.S. tax liability will be next to nill, so it is better to file form NR5 with the CRA to ask for a reduction or elimination of your withholding tax (cash is better than a tax credit when there's no taxes due, right?).

You will have to file a 5013-R each year the withheld tax is reduced with the CRA to show world-wide income so that the  CRA can sleep at night knowing you're not making boat-loads of money offshore while not having taxes withheld.

If you are just finding this out now, and want that withheld tax back, you can file a section 217 with the CRA to request your withheld taxes back.

Sound confusing? It is for most people who don't want to make a full time job out of understanding Canada/U.S. tax treaties. You retired for a reason, right? Give us a call and we can guide you in your tax situation regarding RRSP/RRIF accounts.

Borders Bookkeeping
(760) 895-3516