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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12675
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a US citizen, and have inherited the proceeds of an

Customer Question

I am a US citizen, and have inherited the proceeds of an RRSP in Canada (I was sole beneficiary). I am paying the CRA taxes due because the estate has no money. I just found out about it, but the person died in 2014. Since distribution in Dec. 2014 to today, the fund has increased by $67,000. Will I have to pay tax on this to Canada, or to the US or to both? And if so at what tax rate. We don't usually pay income tax, as our income is to low. Thank you. Fran
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Hi Fran, My name's Lane


So the proceeds are no longer in the RRSP, but has been distributed and taxed .. and is now sittin in a non-quaklified account?


Let me know and we can go from there




I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents since 1986.

Customer: replied 10 months ago.
I'm not sure where the funds are. They were in an RRSP with RBC Direct Investing. The Royal Bank is handling this. The estate objected to them paying me out, so I had a lawyer act on my behalf. Now the bank is waiting for agreements between my lawyer and the estate lawyer. So I assume the Royal Bank is holding the funds.
Expert:  Lane replied 10 months ago.

This could still be sitting IN the RRSP, but your indicating that you paid the taxes would suggest that it has been distributed and now sits in a non-qualified account.


in that case you are not responsible for US taxes until you take "constructive receipt," actually control the money.


If it still sits in the RRSP:


On form 8891 you may elect to defer tax on your Canadian RRSP under the provision of Article XVIII(7) of the Canada – US Tax Treaty but you must specifically make the election.


Form 8891 must be included with a timely filed Form 1040 including extensions to be valid. Absent a validly filed 8891 you will be responsible for paying US income tax on accrued earnings within the RRSP or RRIF

Customer: replied 10 months ago.
I have not yet paid the taxes, I have directed the bank to pay them from the RRSP. But these are the taxes from the final tax return of the deceased.
Customer: replied 10 months ago.
will I have to pay US tax on the $67000, or Canadian tax?
Expert:  Lane replied 10 months ago.

Ok that helps .... where we are now is that you can use the foreign tax credit to mitigate the double taxation ..;. and may be also able to file a form that takes the treaty based position... just a sec