[Sashi]

Hi,

I am a Canadian Citizen physically residing in Canada. I started working in the USA, I will be getting a W2 end of the year. I have only investment income in Canada.

I have been contributing to RRSP while working in Canada over the years. The RRSP contribution room were calculated based on my income earned in Canada.

My question is since I am earning income from the US, will I be able to get RRSP contribution room based on the income earned from USA.
I know that I could possibly have a 401K opened in the US, But I would prefer to have all my retirement investment in RRSP because I plan to be in Canada over the long term.

So advice me if I can get an RRSP contribution room based on the income earned in USA.

Sashi

 

[OhGreatGuru]

If you are declaring this as earned income on a Canadian tax return, I don't see why it would not earn contribution room. However, if you are somehow managing not to have it treated as income, even though you are a factual resident, then the answer would be no.

 

[Sashi]

If you are declaring this as earned income on a Canadian tax return, I don't see why it would not earn contribution room. However, if you are somehow managing not to have it treated as income, even though you are a factual resident, then the answer would be no.

If I show it as income on Canadian tax return, won't that mean I will have to pay taxes to CRA.

I don't wasn't to pay double taxes both to CRA and IRS.

 

[Jimmy]

It depends on where you live or reside where you pay taxes.

If you still live in Canada and do some work in the US you will have to file a Canadian and a US return. If the US rates are higher, you pay them alone. I believe if the Cdn rates are higher, you pay the US first then just the difference in Cdn.

I know you don't pay double.

 

[james4beach]

Sashi: you are a Canadian tax resident and you should continue filing your Canadian tax returns. As a tax resident of Canada, you must report your worldwide income to Canada. That means that you must report your US income as income on your Canadian tax filing.

Your US income (the W2) amounts will be reported on line 104, Other employment income. I suggest using tax software to make sure this gets filled in correctly since it also has an accompanying foreign tax credit (T2209). All of this comes from your W2 slip.

Employment income reported on line 104 will earn RRSP contribution room. For example, last year I earned US income (a W2 like yours) and it added $26,010 to my RRSP contribution limit.

The Canadian side is easy. You might encounter difficulties on the American side, if they think that you are also a tax resident of the US, in which case the IRS will expect you to file taxes as a US tax resident.

Here's a summary of how I've done it. I have homes in both US and Canada and have US employment income.
- I file as a Canadian tax resident
- I file in the US as a nonresident alien (1040NR)
- I add my US income on the T1 line 104, which gets me the RRSP room
- I do a foreign tax credit T2209 which credits me for all US taxes I pay

There is no double taxation. The US already takes taxes at source. The T2209 on the Canadian return credits you taxes you've paid to the US.

Warning: there are lots of tricky parts in this process. The US side, in particular, is a huge pain. I've described what I do, but it may be different in your case and you might have to file differently. The core concept however is that you must report all your income, even the US income, to Canada since you are a tax resident of Canada.

 

[james4beach]

A potential gotcha here is that you should first fill out the US tax fillings (remember you have to file federal and state separately). By first doing the US filings, you will calculate how much US tax you actually paid. These will be different than what's taken off your W2.

Once you figured out how much US tax you actually paid, then you do your Canadian filing. The T2209 foreign tax credit -- and similar provincial tax credit -- should use numbers of your actual US taxes paid . The US taxes paid (to report on T2209) are a sum of: federal actual + state actual + social security + medicare.

The easiest way to do this is using tax software that can recognize foreign income, and it will fill in the Canadian forms appropriately. You'll see your US income show up on line 104 and also your foreign tax credit forms.

For proof that you paid those US taxes, Canada Revenue may ask to see your US federal and state filings.

 

[Sashi]

Thanks

A potential gotcha here is that you should first fill out the US tax fillings (remember you have to file federal and state separately). By first doing the US filings, you will calculate how much US tax you actually paid. These will be different than what's taken off your W2.

Once you figured out how much US tax you actually paid, then you do your Canadian filing. The T2209 foreign tax credit -- and similar provincial tax credit -- should use numbers of your actual US taxes paid . The US taxes paid (to report on T2209) are a sum of: federal actual + state actual + social security + medicare.

The easiest way to do this is using tax software that can recognize foreign income, and it will fill in the Canadian forms appropriately. You'll see your US income show up on line 104 and also your foreign tax credit forms.

For proof that you paid those US taxes, Canada Revenue may ask to see your US federal and state filings.

I usually use a tax software. It is good to know that I could have my RRSP room using my out of country income. Makes good sense.

 

[james4beach]

I usually use a tax software. It is good to know that I could have my RRSP room using my out of country income. Makes good sense.

Yup, I can assure you that it adds up to your RRSP contribution room. I think I've gained tens of thousands of contribution room from my US income.