Returning To Canada To Retire

One common question in this instance is whether RRSP accumulations can remain in Canada. No problem! However, there are a couple of things the taxpayer should know, should circumstances change plans.

Should the taxpayer decide to withdraw funds from his RRSP while he is a non-resident, he will be subject to a withholding tax of 25%. If he decides to withdraw a periodic amount however, the payments may qualify for a 15% withholding rate. In the case of RRIF withdrawals, however, certain rules must be followed to qualify for the 15% rate. That is, payment must be periodic and no more than twice the RRIF minimum amount. These parameters are set out under section 5 of the Income Tax Conventions Interpretation Act.

Also, income earned within an RRSP may be taxable in the US. However, a special election may be made to continue the tax deferred treatment of earnings from pre-emigration investments. The IRS has a special provision for these purposes under Revenue Procedure 89-45 and Revenue Ruling 89-95. The election must be filed each year with the US tax return.

Excerpted from The Jacks on Tax Online Update Newsletter.