QUESTION:
I cashed out my RRSP's in 2004 and I am now living in TX (dual citizenship).
I have heard something about taking a foreign tax credit. I took a total of
about $7k cdn out over 2 different days and only paid the 10% withholding
tax both times. How do I claim this and pay taxes in the US and not in
Canada? I believe this would save me more money doing it this way.
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david ingram replies:
Your financial institution made an error. When you are a non-resident of
Canada, the minimum withholding on an RRSP withdrawal is 25%.
If you have no or little income, you can elect to file a Canadian return
with your world income included and the rate may end up less than 10%, even
zero, if you have no income.
However, as a non-resident of Canada the withholding tax is supposed to be
25%. So at the moment you owe Canada another 15% in withholding.
However, if you have 20,000 US income already, the tax would be more than
25% on the RRSP if taxd on top of other world income.
For the US, the taxable portion value of the RRSP for 2004 is the differnce
in value between Dec 31, 2003 and the day you cashed it in. You can claim a
foreign tax credit on form 1116 for whatever amount turns out ot be taxable.
Glad to look after it for you when you need the returns prepared.
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