I have a client who left Canada in June 2019 and I am preparing his tax return and entered the date of departure. He received NR4 slip for withdrawing his RRSPs and the amount is less then $5000 and 25% tax were withheld. Where do I report this amount? Thanks in advance for your reply and comments.
As he is receiving an NR form, I assume the funds were withdrawn after his departure date. Confirm if this assumption is true. If it is: the 25% tax withheld is the full tax obligation on these funds and amount on the NR4 is not reported on part-year return…
I am aware of the 25% rules of tax withheld for non-residents. This income still should be report it in his tax return.
If the client withdrew the RRSP prior to his departure from Canada then he should have received a T4RSP for the withdrawn proceeds, and the tax withheld should have been 10%.
If the client withdrew the RRSP after emigrating, then as Helga mentioned, the RRSP withdrawal (NR4) does not get reported on his Canadian Tax return since this income was paid while he was a non-resident of Canada.
When you emigrate to the USA you are permitted to leave your RRSP’s in tact (rather than having a deemed disposition), but there is a 25% withholding tax on lump sum withdrawals made while you are a non-resident. I believe if the withdrawals are periodic (such as monthly) the withholding drops to 15%.
The client needs to decide ahead of time whether it is better for them to make the RRSP withdrawal prior to emigration (and pay the tax in Canada) or make the withdrawal after they move and pay the 25% tax.
The client should get a foreign tax credit in the USA for the 25% withheld as presumably the RRSP income would need to be declared on their US return.
If it is beneficial you can report it on a S217 Non-resident return but for that to get any taxes back he pretty much has to have no other income for the non-resident period in order to get personal tax credits. Otherwise - the 25% is the final tax liability and is not reported on the resident part of the tax return.
Thank you very much everyone for your help. Stay safe.