My_question_is: Applicable to both US and Canada
Subject: HB(Home Buyers Plan)
Expert: taxman at centa.com
Date: Wednesday January 10, 2007
Time: 02:35 PM -0500
QUESTION:
Hi David I was hoping you could share your knowledge of the following.
Background: I live in Canada; work in the US (Permanent Resident Commuter).
Took out 12,000cdn from RRSP in 2004 under home buyers plan. Filed tax forms
with the IRS 1040, 8891, and 8833 to exempt the 12,000cdn form taxes.
My first installment payment is due under the Home Buyers plan for tax year
2006. If I elect to add the 1/15 (800.00cdn) to my Canadian tax return as
income instead of contributing back into my RSP would this 800.00cdn amount
be taxable on my 1040?.
Thanks
------------------------------------------------------------
david ingram replies:
Not specifically. However, any increase in value of the plan between Dec
31st 2005 and Dec 31 2006 "is" taxable on Schedule B of your US return
unless you fill in US form 8891.
The penalty for not reporting the RRSP to the US IRS on form 8891 and the
Department of the Treasury on form TDF 90-22.1 is up to $500,000 plus five
years in jail plus 35% of the amount in the RRSP Plus 5% per year for every
year you fail to report it.
See here for the TDF 90-22.1
Read the fine print at the bottom of form TD F 90-22.1
http://www.irs.gov/pub/irs-fill/f9022-1.pdf
Since part of the $800 DOES represent withdrawn money, some or all will be
taxable and can NOT be exempted on form 8891 because you have now officially
withdrawn the money. Remember, for US purposes, it is the interest portion
that is taxable, NOT the principal. However, if the earnings were more than
$800, you would be reporting the total, say $1,100 and exempting the excess
over $800 on form 8891 and claiming a foreign tax credit on the US return
for the tax paid to Canada on the $800.00.
--------------------------------------
Hope this helps
--------------------
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