My_question_is: Applicable to both US and Canada
Subject: Taxation on US IRA
Expert: taxman at centa.com
Date: Wednesday December 01, 2004
Time: 12:46 PM -0800
QUESTION:
My wife is a US Citizen and recent Canadian Permanent Resident residing in
Canada. She has earned (2 months) income in Canada and is considering
withdrawing all of her IRA. How does she have to report this money to
either these countries (CCRA & IRS)? It's my understanding that the IRA
withdrawn is viewed as income by the IRS, but is it also viewed as income by
the CCRA and taxed again?
---------------------------------
david ingram replies:
It is a shame but if your wife withdraws the money form her IRA, Canada will
want to tax it now.
When filing her US return, the Canadian earnings are taxable on her USA 1040
but she can take a foreign tax credit by filing Form 1116 or preferably, if
her income is going to be high, exempting it by filing form 2555. To file
form 2555 this first year, she has to file form 2350 first to apply for an
special extension until Jan 15, 2006 to file her 2004 US income tax return.
The reason for the 2350 form is for her to have been in Canada for a full
calendar year (Jan 1 to Dec 31st 2005) in order for her to qualify for the
"up to" $80,000 US exemption on earnings.
If she is under 59 1/2, she will have to pay the US the standard tax PLUS
10% penalty for early withdrawal of her IRA. Canada will allow credit for
the basic tax paid to the US on the IRA but will NOT allow the 10% penalty
officially.
On the other hand, if she was withdrawing $10,000 US to buy a piece of the
family home, the first $10,000 would not be subject to the 10% penalty.
You should really consult with someone like myself to calculate the
approximate taxes in advance. You can have some rude surprises. In
general, I advise persons in your position to leave the money where it is.
At the moment, your biggest fear is the devaluation of the dollar rather
than the taxes.
Ask a cross-border International real estate rental mutual funds
immigration non-resident income tax expert - David Ingram 's CE-NTA Services
in North Vancouver BC Canada on It's Your Money CKBD AM600 Fred Snyder's
Radio Show
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
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at
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I do not know how far the LD line reaches.
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