Important

RRSP Treaty Protection

Unlike the TFSA, the RRSP receives explicit treaty protection under Article XVIII(7) of the Canada-US Tax Treaty. US residents can elect to defer tax on RRSP income until withdrawal, matching the Canadian treatment. This election must be made properly on your US return.

Key Points

  • Article XVIII(7) allows US residents to defer taxation on RRSP income and gains.
  • The deferral election is made by attaching a statement to your US tax return.
  • Contributions made while a US resident are generally not deductible on your US return.
  • RRSP accounts must still be reported on FBAR and potentially Form 8938 (FATCA).
  • Withdrawals are taxable in both countries, with foreign tax credits to prevent double taxation.

Action Items

  1. 1.Elect to defer RRSP income by attaching the required statement to your Form 1040.
  2. 2.Report RRSP accounts on your FBAR if aggregate foreign accounts exceed $10,000.
  3. 3.Do not make new RRSP contributions while a US resident unless you also have Canadian earned income.
  4. 4.Plan withdrawals strategically to optimize foreign tax credit utilization.

Frequently Asked Questions

Do I need to file Form 8891 for my RRSP?

No. Form 8891 was eliminated in 2014. The deferral is now automatic for taxpayers who have previously filed the form. New elections require a statement attached to your return.

What withholding applies when I withdraw from my RRSP?

Canada withholds 25% (or 15% under the treaty) on RRSP withdrawals to non-residents. This withholding generates a foreign tax credit on your US return.

Related Scenarios

Critical

TFSA US Tax Trap

The Tax-Free Savings Account is tax-exempt in Canada but receives no treaty protection in the US. The IRS classifies a TFSA as a foreign grantor trust, requiring Forms 3520 and 3520-A annually. Failure to file can result in penalties starting at $10,000 per form per year.

Critical

FBAR Filing Requirements

The Report of Foreign Bank and Financial Accounts (FBAR) must be filed by any US person with foreign financial accounts exceeding $10,000 in aggregate at any point during the year. The FBAR is filed electronically with FinCEN, not the IRS, and has its own deadline and penalty regime.

Core

Substantial Presence Test

The Substantial Presence Test (SPT) uses a weighted formula across three years to determine if a foreign national is a US tax resident. If you meet the test, you are taxed on worldwide income. Understanding the SPT is essential for snowbirds and anyone splitting time between Canada and the US.

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