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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22693
Experience:  Taxes, Immigration, Labor Relations
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I am filing our tax return and my husband is from Canada and

Resolved Question:

I am filing our tax return and my husband is from Canada and receives a penision from there. 2012 was the first year he received it. I need answers to the two following questions concering his payment from Canada:

Elect to Defer U.S. Tax?
Did William make an election in 2011 or before under the U.S.-Canada income tax treaty to defer the income accrued in this RRIF?

Elect to Defer U.S. Tax in 2012?
Does William want to make an irrevocable election on this tax return under Article XVIII(7) of the U.S.-Canada income tax treaty to defer the income accrued in this RRIF for 2012 and all future years?
Do I answer yes or no to these two questions??
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
The issue is that while earnings accumulated on RRIF account are not taxable in Canada - as long as no distribution is taken - that generally is not true for US federal tax system. Taxpayers generally may not defer tax liability on earnings accumulated in foreign retirement accounts.
However - there is a tax treaty between the US and Canada - See the tax treaty document between the US and Canada - http://www.irs.gov/pub/irs-trty/canada.pdf
ARTICLE XVIII Pensions and Annuities
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State, but the amount of any pension included in income for the purposes of taxation in that other State shall not exceed the amount that would be included in the first-mentioned State if the recipient were a resident thereof.
2. However:
(a) Pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment; and
(b) Annuities may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of an annuity payment, the tax so charged shall not exceed 15 per cent of the portion of such payment that is liable to tax in the first-mentioned State.
3. For the purposes of this Convention,
the term "pensions" includes any payment under a superannuation, pension or retirement plan, Armed Forces retirement pay, war veterans pensions and allowances and amounts paid under a sickness, accident or disability plan, but does not include payments under an income-averaging annuity contract or any benefit referred to in paragraph 5.

LEV :

If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. treaty (a treaty-based position), you generally must disclose that position on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to your return.

Customer:

I still don't understand

Customer:

do answer yes or no?

Customer:

Do I

LEV :

In particular - you may choose not to report earnings in RRIF - but to defer them upon distribution.

Customer:

ok,color me dumb.in plain talk olaese

Customer:

please

Customer:

if I prefer to claim it

Customer:

it is taxed in this country then?

LEV :

Yes - you may claim such earnings even if they are not distributed - and later - distribution will not be taxable.

Customer:

what do yo umean my distributed?

LEV :

Distribution means - periodic pension payments.

Customer:

Do I have to answer my email everytime I get an answer from you?

Customer:

guess not

LEV :

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.

Customer:

ok,he gets paid monthly

Customer:

ok,so if I answer no to being defered,what will that do?

LEV :

So - if he made selection to defer taxes on earnings - and paid every year taxes on these earnings - distribution is not taxable - but based on your questions - I guess he did not make any choice?

LEV :

In this case he may do such choice now.

Customer:

not yet.........he just started getting the penision last year in the summer,we have no idea what to do. He only gets a small amount

Customer:

most of his earnigs have been in USA
I am filing our tax return and don't know if I should defer or not

LEV :

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).
So - you might want to use Form 8833 - so his pension will be taxed at reduced rate.

LEV :

I suggest - yes - most Canadians do defer.

Customer:

he retired and applied to canada for what amounts to social security here

Customer:

so is the amount he receives already taxed?

Customer:

ok,if he defers will he still receive the monies?

LEV :

If he is NOT a resident of Canada but a resident in the US - his Canadian pension is taxed in US only.

Customer:

ok,so that amount will come off our return?

LEV :

He would defer his tax liability on earnings inside his retirement account - but will be taxed only on amounts he actually receive.

Customer:

ok

Customer:

I will answer yes then

LEV :

However - his Canadian pension will be taxed at reduced rate - not more than 15% - that is because of the tax treaty - be sure you select tax treaty treatment.

Customer:

as you stated most canadians do

Customer:

ok,thank you very much for your help

LEV :

If you choose to defer - his Canadian retirement will be treated similar way as US retirement.

Customer:

ok,so if he isn't working anymore will he still be taxed for that income?

LEV :

Yes - that income will be included into your combined taxable income - assuming you are filing jointly.

Customer:

he is 66 now so he doesn't have to pay taxes on social security,just the income from Canada?

Customer:

what is Taxable Part of RRIF Distribution?

Customer:

where do I find that info?

LEV :

Yes - that is correct - but if you have any tax liability is based on your combined income.

Customer:

I am retired

LEV :

Taxable Part of RRIF Distribution is the amount in his account before he became US resident.

Customer:

I have no idea how much that is.......his payments are only 219 and change a month\

Customer:

would the taxable amount be the gross that he received last year?

LEV :

That might be something you need to verify with RRIF administrator.

Customer:

ok,I need to quit and let him call Canada tomorrow

LEV :

If he was US citizen all the time - all his Canadian pension is taxable.

Customer:

he isn't a citizen

Customer:

but has been in this country for 30 years

LEV :

So - part of his RRIF will not be taxable in the US. Only the amount that was contributed AFTER he became US resident.

Customer:

he got a statement showing the amount paid to him in 2012.........stating it as taxable Quebec Oension Plan benefits

Customer:

Pension

Customer:

it shows gross income as 1082.05

LEV :

If he was living in the US long time - most of his Canadian retirement would be taxable.

Customer:

ok,he will have to call Canada tomorrow or look through his papers

Customer:

from what I understand,he should know how much he will be paid over time

Customer:

and deduct any amounts paid him during any given year?

Customer:


















Enter the amount of distributions William received from this RRIF in 2012.




















Total RRIF Distribution
Taxable Part of RRIF Distribution
Balance in RRIF on December 31, 2012

Customer:

I understand that it will be taxed but I have no idea about how to answer the following:

LEV :

Yes - it would be better if you have all papers.

Customer:

do you understand the part I just posted?

Customer:

Doing taxes was so much easier before it involved another country

LEV :

What you need
-- Balance in RRIF when he became US resident.
-- Balance in RRIF on December 31, 2012
so - you will have percentage of nontaxable portion.
Then - take the amount he received - and calculate taxable part.

Customer:

ok,thank you for your help

LEV :

You are welcome.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22693
Experience: Taxes, Immigration, Labor Relations
Lev and 7 other Tax Specialists are ready to help you

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