RRSP and Rental Income - Canadian in USA

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
Post Reply
EGB84
Newcomer
Newcomer
Posts: 3
Joined: 21 Apr 2017 01:58

RRSP and Rental Income - Canadian in USA

Post by EGB84 »

Hi there,

I am a green card holder living in the US. I own a rental property in Canada. My question is about the wisdom of continuing to contribute to my RRSP while living in the States. This would reduce my Canadian tax burden but would also reduce my foreign tax credit in The US.

Any thoughts?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33314
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RRSP and Rental Income - Canadian in USA

Post by AltaRed »

EGB84 wrote: 21 Apr 2017 02:08 Hi there,

I am a green card holder living in the US. I own a rental property in Canada. My question is about the wisdom of continuing to contribute to my RRSP while living in the States. This would reduce my Canadian tax burden but would also reduce my foreign tax credit in The US.

Any thoughts?
Not enough context of what your taxable situation to comment. Are you making contributions but not taking tax deductions? Or are you a taxable resident of Canada?
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
EGB84
Newcomer
Newcomer
Posts: 3
Joined: 21 Apr 2017 01:58

Re: RRSP and Rental Income - Canadian in USA

Post by EGB84 »

I pay taxes in Canada on my rental income (25% witholding). I pay taxes in the US on my global income (receiving a tax credit under the US/Canada tax treaty for taxes paid in Canada). In 2016 I contributed to my RRSP and reduced and took the deduction. I am wondering if I should continue doing this.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7952
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: RRSP and Rental Income - Canadian in USA

Post by Norbert Schlenker »

EGB84 wrote: 25 Apr 2017 19:23 I pay taxes in Canada on my rental income (25% witholding). I pay taxes in the US on my global income (receiving a tax credit under the US/Canada tax treaty for taxes paid in Canada). In 2016 I contributed to my RRSP and reduced and took the deduction. I am wondering if I should continue doing this.
You "took the deduction" on what, a section 216 T1? If so, what good did it do you?

Except in a case where some other limitation applies, reducing your Canadian tax by using an RRSP deduction nets you nothing at all. Your Canadian tax falls by $x, so the foreign tax credit you can claim on your US 1040 falls by $x, so your US tax liability rises by $x. Canada gets $x less, the US gets $x more, and the net result for you is zero.

There's some potential future benefit because you're shoving money into a tax shelter that both Canada and the US will honour, but it's a big zero for cash flow in the current year.
Nothing can protect people who want to buy the Brooklyn Bridge.
EGB84
Newcomer
Newcomer
Posts: 3
Joined: 21 Apr 2017 01:58

Re: RRSP and Rental Income - Canadian in USA

Post by EGB84 »

Yes, I filed a 216 return and received $220 as a tax return for every $1,000 in RRSP contribution.

Is it an exact 1:1 relationship between taxes paid in Canada and taxes owed in the US? It seemed more complicated than that when I completed my return.
User avatar
Norbert Schlenker
Veteran Contributor
Veteran Contributor
Posts: 7952
Joined: 16 Feb 2005 09:56
Location: An Argument Surrounded By Water
Contact:

Re: RRSP and Rental Income - Canadian in USA

Post by Norbert Schlenker »

The relationship may not be exactly one to one, but it's likely to be close.

You'll have to do a prospective calculation (every year) to see if it's likely to be of benefit, and you should be able to do that calculation for last year because you have the actual figures in hand. You seem to know already what happened on the Canadian side. You just need to figure out how it affected the bottom line on your 1040 by adjusting Form 1116 as if you hadn't made the RRSP contribution. Compare the Canadian savings against the US increase.
Nothing can protect people who want to buy the Brooklyn Bridge.
Post Reply