# Canadian RPP and RRSP - help to confirm I did this correct in US Tax return



## sabad66

Hi All,
I am almost ready to submit my streamlined process tax submission package to the IRS, but wanted to confirm i didn't make any mistakes on how i treated my RPP/RRSP.

Background:
- Started a professional job in 2011 which has a company RPP. It is a DC plan (for now) where I contribute 4% of salary and they put in 10%. On my T4 it has my yearly RPP contributions listed
- Opened an RRSP in January 2013 with a $7000 contribution. Since this was within the first 60 days of 2013, i was able to count this towards my 2012 Canada tax year. Not sure which year to use this on for the US tax return
- I am using the FEIE method since I am at around 75k wages income for 2012

Questions:
1. For my RPP contributions, i converted to USD and reduced my 1040 line 7 and form 2555-EZ by the RPP contribution amount. I also included a statement explaining this (referencing US/Canada tax treaty) and included a copy of my T4. Is this the correct way to handle RPP contributions?
2. For RRSP, should i fill in a form 8891 for 2012 even though it was opened in 2013 (aligning with Canada Tax return), or should i wait until 2013 tax to do this?
3. For RRSP - based on all the reading i have done, I don't believe I can deduct my contributions from my earnings (like i did for the RPP contribs). Is this correct?

Thanks very much in advance!


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## BBCWatcher

> 1. For my RPP contributions, i converted to USD and reduced my 1040 line 7 and form 2555-EZ by the RPP contribution amount. I also included a statement explaining this (referencing US/Canada tax treaty) and included a copy of my T4. Is this the correct way to handle RPP contributions?


Unless the instructions say otherwise, I wouldn't do it that way. I'd report line 7 accurately: your (total, worldwide) wages, salaries, tips, etc. Then you make your allowed adjustments to line 7 elsewhere. Line 21 is a good place if nothing else fits. The FEIE/FHE shows up as a negative number on Line 21, so negative numbers are certainly allowed there.

....But you don't need to claim a treaty position here since your line 7 is fully shielded via the FEIE/FHE anyway. This would only ever be relevant if you're either not taking the FEIE/FHE or you're exhausting your FEIE/FHE. Neither of those situations apply here.



> 2. For RRSP, should i fill in a form 8891 for 2012 even though it was opened in 2013 (aligning with Canada Tax return), or should i wait until 2013 tax to do this?


Unless the instructions say otherwise, go with the tax year in which an event occurs. So in this case you'd wait until tax year 2013's filing.



> 3. For RRSP - based on all the reading i have done, I don't believe I can deduct my contributions from my earnings (like i did for the RPP contribs). Is this correct?


It doesn't matter in your case, does it? If you're taking the FEIE/FHE, and it's shielding all your earned income, there's no more earned income to shield.


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## sabad66

BBCWatcher said:


> Unless the instructions say otherwise, I wouldn't do it that way. I'd report line 7 accurately: your (total, worldwide) wages, salaries, tips, etc. Then you make your allowed adjustments to line 7 elsewhere. Line 21 is a good place if nothing else fits. The FEIE/FHE shows up as a negative number on Line 21, so negative numbers are certainly allowed there.
> 
> ....But you don't need to claim a treaty position here since your line 7 is fully shielded via the FEIE/FHE anyway. This would only ever be relevant if you're either not taking the FEIE/FHE or you're exhausting your FEIE/FHE. Neither of those situations apply here.


You're right that it isn't relevant here, but in 2014 I will be over the FEIE limit so basically just learning now for the future.

Are you saying that the best way to do this is to not bother with the treaty position and do it in a future year when it actually matters?



BBCWatcher said:


> Unless the instructions say otherwise, go with the tax year in which an event occurs. So in this case you'd wait until tax year 2013's filing.


This is what I thought, but just wanted to double check. Will have to read through the instructions one last time... Unfortunately the 8891 instructions are not very comprehensive so might need to look at something else like maybe publication 54.



BBCWatcher said:


> It doesn't matter in your case, does it? If you're taking the FEIE/FHE, and it's shielding all your earned income, there's no more earned income to shield.


Yep doesn't matter in this case, but it will make a difference for 2014 taxes so just trying to learn and plan in advance.

Btw thanks for your advice!


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## BBCWatcher

sabad66 said:


> Are you saying that the best way to do this is to not bother with the treaty position and do it in a future year when it actually matters?


I think that's quite reasonable. You're not required to take a treaty benefit position.

If you do take one in the future, and there's no other place to take it, I'd take it in Line 21. There's a general treaty position form (Form 8833) where you can explain what you've done, but the IRS seems to have specific forms (like Form 8891) to take the popular/common treaty positions involving Canada.



> This is what I thought, but just wanted to double check. Will have to read through the instructions one last time... Unfortunately the 8891 instructions are not very comprehensive so might need to look at something else like maybe publication 54.


I don't see why there'd be any U.S. tax consequence or event in 2012 when you do something (open an account) in 2013. In particular, there are no gains on the account before it's opened, and you don't need to lower your taxable earned income in tax year 2012 (if that were possible) since you've already zeroed it.



> Yep doesn't matter in this case, but it will make a difference for 2014 taxes so just trying to learn and plan in advance.


That means your income is going up, so a happy problem to have.

Since you're saving for retirement via the Canadian vehicles, one possibility to consider in future years, _assuming there's tax protection in Canada_, is to make contributions to a U.S. tax-advantaged retirement account, too, once you get some income that's not FEIE/FHE/treaty-shielded. Note that your portion of income above what you can claim in FEIE/FHE/treaty benefit still gets Foreign Tax Credit protection, but even though you take the FTC on that final portion of your income that portion does count as earned income for purposes of qualifying to make IRA contributions.

If you want to contribute to a U.S. Roth IRA -- often the preferred choice, assuming again Canada respects it -- use your favorite Internet search engine to lookup "backdoor Roth" and read more about that.


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## Bevdeforges

One small caveat - if you take the FEIE and want to take credit for your RPP contribution in a year when your earned income exceeds the FEIE limit, you may have to apportion your RPP contribution between the part of your earned income you exclude with the FEIE and what's left over. 

Check pub 54 for more information on this but in general terms, it means that if you have $100,000 in earned income and the FEIE limit is $95,000 (just to give us round numbers), you can only deduct 5% of your RPP contribution from the $5,000 in "excess" earned income. You can't deduct the whole thing.
Cheers,
Bev


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## sabad66

Thanks Bev, will keep that in mind.

Would you happen to know exactly where to make this deduction? I read on another forum to simply reduce line 7 by the amount, but reading BBC's reply above also makes sense (that it should go in a specific box).

Cheers


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## BBCWatcher

IRS Publication 519 Chapter 9 says you can use line 21 for your treaty position adjustment(s) to line 7, so trust the IRS.

However, it also says (surprisingly) you have the option not to report treaty protected income on line 7 as long as the IRS never hears about it on a W-2 or related form. I'm not a fan of this approach for your own sanity (remembering what the heck you did, esp. if there's ever an audit or inquiry), hence my advice to go with the line 21 path, but it is technically allowed. Form 8833 (or specific form for Canada if it exists) should be filed either way.

By the way, if you're claiming a _reduced_ rate of tax on particular income due to a treaty (as opposed to an exemption from tax), that'd be done in line 61.


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## Bevdeforges

If you should choose to go the non-reporting route, just keep good notes on your tax return along with your copy of the forms. Actually, keeping notes with your tax filings is a good idea all around. It's unlikely you'll be questioned about any specific item, but just in case you are, having your notes to back up what you did and why can come in real handy - even if only for filing the next year's return.
Cheers,
Bev


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