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Question

I’ll be moving to the U.S. from Victoria at the end of the year and I need some advice on my RRSP. Since I’ll be selling my house before leaving my only significant asset will be the RRSP (around $100,000).

Can I leave the RRSP in Canada or do I have to collapse the account?

Answer

Hi

In most cases, unless your income in the year you leave will be very low you will be better off leaving the account in Canada.

As a non-resident RRSP holder, however, each withdrawal will attract a withholding tax of 25%. You do have the opportunity to reduce this withholding to 15% if each payment is considered a “periodic payment” under the Canada-U.S. tax treaty.

In order for the payment to be considered a “periodic payment” you will need to convert the RRSP to a RRIF, and start taking minimum withdrawals. You can defer the conversion to RRIF until you start taking distributions.

Once converted to a RRIF, all payments will be considered “periodic” and only subject to a 15% withholding if the annual payments are less than:

The greater of:

a) 2 times the amount of the minimum annual payment

b) 10% of the RRSP/RRIF fair market value at the beginning of the year

For example, if your annual minimum payments on your RRIF are $1,000 a month, and you take $2,000 a month in payments, they will still be considered “periodic payments” and only be subject to a 15% withholding.

For example, the greater of a) $24,000 and b) $10,000 is $24,000 and since you haveve only withdrawn $24,000 for the year your withholding rate will remain at 15%. Any withdrawals from the account in excess of $24,000 would attract a 25% withholding.

Make sure to co-ordinate these payments with your accountant and broker as withholding rates are often incorrectly calculated at the brokerage level.

Also, in years where additional lump sum amounts are withdrawn from the RRIF, you have the ability to file a section 217 Canadian income tax return to tax the withdrawals at graduated Canadian tax rates. You will need to properly plan this return with a Canadian accountant that specializes in cross border tax returns.

I hope the information above was helpful and please do not hesitate to contact me at phil@hutcheson.ca or by telephone at 250-381-2400 if you have any additional questions.

Cheers

Phil

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

One response to “Tax on RRSP/RRIF Payments after Moving to the U.S.”

  1. Brad Ferguson says:

    If the payments are taxed at the source (Revenue Canada), how does the IRS view the amount actually received (a net after Canadian tax) and the amount paid to Revenue Canada in taxes (the 15%)?

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Philip Hogan

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The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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