RRSPs for U.S. Resident Expats

Paul Bains Pacifica Partners

Several changes have been made recently to the Canada -- United States Tax Treaty that impact the growing Expat community in the U.S. The recent changes are referred to as the Fifth Protocol changes.

A specific area that has been changed effective January 1, 2009 is with respect to the mutual recognition of RRSPs and IRAs. Individuals that move across the border or that are placed on a short-term assignment, may be able to use retirement contributions made in one country applicable in the other country. More precisely, contributions made to 401(k) by a US resident worker/employee, would be allowable for deduction on the Canadian tax return as well.

Likewise, an American citizen working in Canada could make an RRSP contribution and then apply that contribution as a deduction on his/her U.S. tax return. In addition, contributions can be deductible for the employer in the other country. Of course, one cannot exceed the qualifying limits in the home country.

As an example:
• Johnny Canuck moves from Calgary to Houston. He works for a US employer during all of 2008.
• He makes $5,000 of elective contributions and his employer makes another $2,000 of matched contributions. Johnny was a member of the Canadian company pension plan prior to moving.
• Johnny can deduct $5,000 from his taxable compensation in U.S. while his employer can deduct $2,000.

To ascertain if you qualify or if you require further information, please contact your tax professional or send me an email paul@pacificapartners.com.