rrsp contribution & capital gains tax via deemed disposition

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scorpionman
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rrsp contribution & capital gains tax via deemed disposition

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If you expect to have a deemed disposition and (fictitious) capital gain from stocks on becoming non-resident, can you make an RRSP contribution earlier in the year to offset some of the tax that is owing or is this tax owing a separate calculation that can't be offset by any regular deductions earlier in that year?
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patriot1
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Re: rrsp contribution & capital gains tax via deemed disposition

Post by patriot1 »

RRSP contributions are deductible against total income, doesn't matter what it's made up of.
scorpionman
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Re: rrsp contribution & capital gains tax via deemed disposition

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let's say you have this situation:

$300,000 of unrealized capital gains all realized as deemed dispostion, no other income.
rrsp deduction of $80,000
alberta

Now if in the year you become non-resident, the tax owing would seem to be - $16,278 federal and 7300 provincial, total 23.5k after the 80k rrsp deduction.

For form T1244 it says if the federal tax owing is less than $16,500 no security is needed to be posted on this deemed disposition. In other words, I understand this you don't have to pay the federal portion of the tax - but do you still have to pay the provincial portion and send a check of $7300 or you don't have to pay any of the tax at line 435 of T1? And how is it distinguished between realized and unrealized dispositions?


Presumbly the RRSP can be converted to an RRIF and a 15% tax rate can be achieved. If you take it out as a lump sum and pay 25%, it's higher then paying the pure capital gains tax without using an RRSP at all which seems to come out to 14.5%. $43,750 on $300,000 deemed disposition. I'm not sure if there is any benefit to use an RRSP deduction against capital gains when capital gains taxes are so much lower. The only benefit is deferring this entire amount with no cash outlay (except maybe the $7300 provincial portion?) for a while and then only if converting to an RRIF and getting periodic payments over several years. Is this how it works in the above calculations? Would you use an RRSP in this scenario or just forget about it?
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patriot1
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Re: rrsp contribution & capital gains tax via deemed disposition

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scorpionman wrote: 06 Oct 2017 04:12I'm not sure if there is any benefit to use an RRSP deduction against capital gains when capital gains taxes are so much lower.
The RRSP deduction is against total income. So the savings in tax paid for a given RRSP contribution, and a given total income, is the same regardless of the source of income.
scorpionman
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Re: rrsp contribution & capital gains tax via deemed disposition

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I don't understand this last point. If my total income is taxed at 20% and RRSP has a non-resident 25% withholding tax I would increase my tax by contributing. If my total income is capital gains at 15%, then contributing to RRSP and withdrawing as a non-resident (or even as a resident most likely) would cost me 20-25% withholding, increasing tax paid. It seems the benefit of RRSP is either withdrawing very tiny amounts as resident or as RRIF under a tax treaty at 15%. Is there any other options?
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patriot1
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Re: rrsp contribution & capital gains tax via deemed disposition

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Total income of $50K, or $100K, or whatever, is taxed at the same rate regardless of source of income, and thus an RRSP deduction will get you the same reduction in taxes at the marginal tax rate. Note marginal tax rate, not average tax rate.

Certainly there's no point in contributing to an RRSP if the marginal rate at withdrawl exceeds the marginal rate at contribution. But I doubt your marginal rate is only 20%, that's about as low as it gets.
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Re: rrsp contribution & capital gains tax via deemed disposition

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:) it's funny in many countries 20% is the top rate, in Canada it's the bottom rate!
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Re: rrsp contribution & capital gains tax via deemed disposition

Post by OhGreatGuru »

scorpionman wrote: 07 Oct 2017 10:46 :) it's funny in many countries 20% is the top rate, in Canada it's the bottom rate!
Yes, and many countries have a 25% Value-Added-Tax, so you are comparing apples & oranges.
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Re: rrsp contribution & capital gains tax via deemed disposition

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From my experience the 25% vat is a distraction. Even with the 25% vat *total* price of goods and services is equal to 1/2 - 1/3 the price for the same goods with lower VATs elsewhere... value added taxes are weird. I've just ignored them and looked at the total price. Most places I've been differences in income tax are far greater then differences in VAT even if you spend 100% of your income as expenses each year on VAT items - and many big items are excluded such as food and mortgages or rental cost.
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