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Lev
Lev, Tax Advisor
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Hello, Im a Canadian/US dual citizen. I moved to the

Resolved Question:

Hello,

I'm a Canadian/US dual citizen. I moved to the states 7 years ago. I have approx 39,000 in my Cnd RRSP account (untouched since I moved to the US).

If I cash it out, I understand that Revenue Canada will keep 25% as withholding tax. What will the IRS take?

Many Thanks,
Jon
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

As a general rule, the pension/annuity articles of most tax treaties allow the country of residence (as determined by the residency article) to tax the pension or annuity under its domestic laws. This is true unless a treaty provision specifically amends that treatment.

Please see IRS publication 597 - http://www.irs.gov/pub/irs-pdf/p597.pdf page 2.

Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada.

Under Article XVIII, pensions and annuities from Canadian sources paid to U.S. residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Canadian pensions and annuities paid to U.S. residents may be taxed by the United States, but the amount of any pension included in income for U.S. tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident.

 

Please provide the information above to your tax preparer to claim a tax treaty benefits.

Let me know if you need any help.

 



Edited by LEV on 5/3/2010 at 8:31 PM EST
Customer: replied 6 years ago.
Thanks for the response LEV.

To clarify, I understand that if I cashed the RRSP out I would pay 15% withholding fee to Revenue Canada, then pay taxes to the to IRS on the amount that the Mutual funds appreciated over the 7 years I've lived in the US. Is this correct?

Many Thanks,
Jon
Expert:  Lev replied 6 years ago.
You are correct - US taxable income is determined as growth after you moved to the US.

If the same income is taxable in the US and in a foreign country - the person may claim a credit for taxes paid in a foreign country on your US tax return.

To determine the amount of credit - the person should use the form 1116 and attach it to the tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf

Here are instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf

 

Please see more details in IRS publication 54 - http://www.irs.gov/pub/irs-pdf/p54.pdf

 

Let me know if you need any help.

 

Customer: replied 6 years ago.
Thanks Lev!

One last note, do I calculate the exchange rate (cnd to us) on the mutual funds 7 year appreciation when I cash out the RRSP? Or will I be forced to go back and find every little dividend payout over the last 7 years and calculate the exchange at that time?

Many Thanks,
Jon
Expert:  Lev replied 6 years ago.
There is no need to use the exchange rate each time dividends were paid.

You should use the exchange rate at the time you convert the money into US dollars.
Lev and other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Many Thanks!

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