It’s a safe move and it makes sense: put a little money away each year for a comfortable retirement. Many Canadians are and have been taking advantage of Registered Retirement Savings Plans (RRSPs) to plan for their golden years. In most plans, annual contributions are deductible and growth of your RRSP is not taxed like regular income.
There are some exceptions though, especially if you are a citizen or dual citizen of the United States. Americans living in Canada must become aware of the appropriate rules with regards to RRSPs and filing a U.S. tax return. The following is a list of essential information:
- An RRSP is not a qualified plan for U.S. taxes and therefore, no deductions are allowed when contributing to a plan.
- U.S. law does not allow income deductions for RRSP contributions, so maximizing contributions to your RRSP could result in higher taxable income for U.S. purposes than Canadian.
- Thanks to the Canada-US Tax Treaty, both countries recognize the importance of retirement saving. Under this treaty, a U.S. taxpayer can defer tax on the growth from an RRSP, if the proper form is completed.
- Typically the higher rate of Canadian taxes provides enough tax credits to offset the payable U.S. tax; but there could be times when U.S. tax is payable because of different taxable income levels.
It may seem overwhelming, but if you are a U.S. Citizen living in Canada you can turn to Liu & Associates for help. Our advisors are expertly trained and familiar with all of the ins and outs of the Canadian and American tax systems. Visit or contact us for a consultation and we will be happy to simplify the process and solve any problem.