Introduction

Who is this for?

This book is written for a specific person: a resident or citizen of the United States who has a Canadian Registered Retirement Savings Plan. I will call the Registered Retirement Savings Plan an “RRSP” in this book.

For simplicity’s sake I will consider this person to be a Canadian citizen who lives in the United States. However, the same rules apply to a U.S. citizen who has an RRSP, so if you are in that position, this book will answer your U.S. tax questions about your RRSP, too.

Canadians living in Canada

An RRSP is a mini “do-it-yourself” Canadian pension plan. For a Canadian living in Canada, the Canadian income tax treatment of an RRSP is simple:

  • When you put money into an RRSP you get a tax deduction for Canadian income tax purposes. (I will call this a “contribution” to the RRSP).
  • When you take money out of the RRSP, you have taxable income for Canadian income tax purposes. (I will call this a “distribution” from the RRSP).
  • Interest, dividends, and capital gains that are earned inside the RRSP will be tax-free for Canadian income tax purposes. (I will call these earnings the “investment earnings” inside the RRSP).

Yes, there are many more nuances and complexities. Those complexities don’t matter for the purpose of this book, because we are just considering the ways in which the U.S. tax authorities look at RRSPs.

Canadians living in the USA

The United States has a “do-it-yourself” pension plan similar to the RRSP. It is called an Individual Retirement Account—an “IRA.”

People see the similarity of RRSPs and IRAs, and make assumptions. Those assumptions cause problems. U.S. tax problems.

Canadians who live in the USA may assume that their RRSPs will be treated for U.S. income tax purposes just like an IRA. They assume that there is no income to be reported on their U.S. income tax returns, and no oddball U.S. tax paperwork to be filed.

Americans living in Canada

Americans who live in Canada are in the same boat. They open RRSPs and file Canadian income tax returns. They assume that the income tax treatment they get in Canada is mirrored for their U.S. income tax returns—a tax deduction for making the contribution to the RRSP, no taxation of the investment earnings inside the RRSP, and nothing to be reported until a distribution is made.

Reality differs from assumptions

These assumptions are wrong. As will be discussed in this book:

  • Contributions to an RRSP will not generate an deduction for U.S. income tax purposes.
  • Unless you take proactive steps (described in this book) you will pay U.S. income tax on the RRSP investment earnings, even though Canada will not tax those investment earnings until distribution to you.
  • Distributions may be taxed differently in Canada and the United States.
  • There is paperwork required in the U.S. for an RRSP that is not required in Canada.

Report correctly this year, fix past years

In this book I tell you how to properly report your RRSP on your 2009 U.S. income tax returns.

In addition, this book talks about fixing past errors. I know that many people were simply unaware of the U.S. tax requirements and have discovered that their prior year U.S. tax returns are incorrect. This book tells you what to do.