How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask USTaxAdvising Your Own Question

USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1087
Experience:  US Taxation specialist.
58296935
Type Your Tax Question Here...
USTaxAdvising is online now
A new question is answered every 9 seconds

Do I want to make an irrevocable election on this tax return

Resolved Question:

Do I want to make an irrevocable election on this tax return under Article XVIII(7) of US-Canada income tax treaty to defer the income accrued on a RRIF for 2011 and all future years? What are the ramifications of my answering yes or no???
Submitted: 2 years ago.
Category: Tax
Expert:  USTaxAdvising replied 2 years ago.

Hello,

 

Very good question. Most of the time I see U.S. Citizens with RRSPs or RRIFs making this election. The reason being is that the timing of taxation by Canada and the U.S. is the same (this helps with foreign tax credit planning purposes).

 

Being a U.S. citizen you are taxed on your worldwide income. This includes the income generated by the RRIF/RRSP. By making this election you are electing to tax the income the RRIF/RRSP has made when you take a cash distribution from the account, not as it is earned in the account.

 

Generally it is preferably to make this election for foreign tax credit planning purposes. When you take a cash distribution Canada will tax you on it, and assuming you have made the election, the U.S. will tax you on it as well. Given the foreign tax credit the U.S. tax basically gets canceled out. Absent the election the U.S. will tax you on the annual income the RRSP/RRIF earns but you won't have any Canadian taxes paid to get a foreign tax credit. Absent the election you'll pay tax in the U.S. on it as it is earned and in Canada as you take cash distributions. (generally not preferable)

 

Don't forget to file an FBAR and the 8938 to report the account and asset.

 

Please let me know if you have any further questions.

 

Best regards

USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1087
Experience: US Taxation specialist.
USTaxAdvising and other Tax Specialists are ready to help you
Customer: replied 2 years ago.
My husband has been a resident of the US since 1996 - thus has not made any contributions since then. We have never claimed the RRIF (RRSP until last year, when he turned age 72) on US tax forms. He had to take a distribution in 2011, for which he had taxes held by Canada for being a non-resident. 1.) Do we still want to answer affirmatively to the Article XVIII(7) deferral? 2.) Will we get the Canadian taxes back? 3.)Are we now subject to the "double taxation"??

Thank you
Expert:  USTaxAdvising replied 2 years ago.

Ok so your husband became a U.S. resident/citizen in 1996 and has not made contributions to the RRIF since 1996. Being that he is a U.S. citizen/resident he should have been disclosing the RRIF on Form 8891 (see below) annually and including the income from the RRIF on his Form 1040.(absent the election)

 

1.) Do we still want to answer affirmatively to the Article XVIII(7) deferral? - the choice is yours. If you do not elect deferral then any income the fund earns during the year must be reported and it will be taxed as if it were distributed. (see my comments on the prior post, generally most U.S. citizens whom own such assets make this election)

 

2.) Will we get the Canadian taxes back? - You probably won't get the Canadian taxes back. The RRIF was contributed to with "PRE-Tax" dollars so Canada will tax it on distribution. You might be able to file a Canadian return to get a refund of the taxes paid.

 

3.)Are we now subject to the "double taxation"?? - not really but somewhat (absent the election). If you don't elect you won't get the benefit of the foreign tax credit until Canada taxes the distribution. The U.S. will tax the earnings even though it is not distributed. With the election you get to report the "distribution" as income to both countries in the same year and maximize the foreign tax credit.

 

I hope this helps, please let me know if you have any further questions. If you choose to make the election (which is strongly preferable) be sure to mark part 6c of the 8891 so that the election is irrevocable for the current year and all subsequent years.

 

Form 8891 - http://www.irs.gov/pub/irs-pdf/f8891.pdf

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.