54 .. Wednesday, November 7, 1990 ~ North Shore News BUSINESS Beware of U.S. retrrement tax traps TAX TRAPS lurk for the unwaty Canadian who retires to the United States. How you handle your RRSP alone could cost — or save — you thousands of dollars. “The appropriate tax strategy depends on many factors, so it’s usually a good idea to ect profes- sional advice,’’ said Virginia Perry, senior tax manager in the U.S. and cross-border tax group of Peat Marwick Thorne, chartered accountants. “But the following tax tips — and traps — will alert you to the type of planning you should con- sider.’* John (or Joan), 55, is a Cana- dian citizen who has never been a U.S. citizen. He (she) has fived and worked in Canada and retired to live in the U.S. late fast year. So for 1990, he will be a U.S. res- ident for tax purposes. Over the years, John has con- tributed $100,000 to his registered retirement savings plan. When he moved to the U.S., interest earn- ings had boosted his RRSP total to $250,000 and the plan earned another $25,000 for 1990. ‘*We'll assume an exchange rate of $1.17 and a U.S. federal marginal tax rate of 28 per cent — although an increase to 31 per cent has been proposed effective Jan. 1, 1991,’’ Perry said. ‘*Also, most states have their own income taxes and may not follow the fed- eral rules.”’ Perry noted that these rules covering an RRSP also apply to a registered retirement income fund (RRIF). While the money in the RRSP/RRIF can continue to grow tax free as far as Revenue Canada is concerned, the earnings will be taxed in the U.S. unless John elects to defer the tax. TAX TIP ONE. Elect to defer College gets funds From page $2 The college currently enrols more than 500 students each year in real estate related courses through credit and non-credit program encompassing business management, legal assistant and legal secretary programs. Non-credit continuing education courses in real estate are also of- fered by extension programs and services in the falf and winter terms. FEELING TEN FEET TALL! “Ail those badges we gor toz tying knots, doing up bandages and properly keeping stock ot camp supplies, are some of the best pats on the back of our fives! Very motivating!” SEU IIb BABS Nichae! DOLLARS AND SENSE tax on income accumulating in an RRSP/RRIF. By attaching a statement with the necessary information to his U.S. federal tax return, filed by the deadline, John will defer U.S. $5,983 of federal tax for 1990. He must make this election each year. Note: information dating back to the beginning of the RRSP may be needed. TAX TIP TWO. Decide each year whether this election to defer tax is beneficial. If John has other deductions or credits on his U.S. tax return, he might be able to declare his RRSP/RRIF earnings and still not pay any tax, This would increase the U.S, cost base of his plan and may result in lower over-all tax when he withdraws the funds. TAX THP/TRAP THREE. If John has mutual funds or similar corporations in his RRSP, these are considered ‘passive foreign investment companies’? and could result in unexpected U.S. tax bills. These PFICs should be converted to other investments before the RRSP-holder moves to the U.S. TAX TIP FOUR. Plan withdrawals to minimize tax, “When vou take money out of your RRSP/RRIF as a U.S. resi- dent, if you take our a lump sum, Revenue Canada’s withholding tax is 25 per cent, bur if you take regular income, only 15 per cent is withheld,”’ Perry said, Let’s say John cashes his entire $250,000 RRSP carly ia 1990, Revenue Canada withholds $62,500 and John pays no U.S. federal tax. John mizht even be able to use the $62,500 as a tax deduction or foreign tax credit if he has other passive income from Canada. (Contrast this approach with cashing the RRSP before moving to the U.S. Revenue Canada would withhold $75,000 but the entire $250,000 would be taxed in Canada resulting in a total tax bill of probably more than $100,000.) Now lIet’s say John uses his RRSP to buy an annuity to age 90, with payments of $26,000 (Canadian) a year starting in 1990. Revenue Canada withholds 15 per cent, or $3,900. John will be subject to U.S. $4,513 U.S. feder- al tax — but can claim the Cana- dian taxes as a credit and so end up paying only U.S. $1,180. TAX TIP/TRAP FIVE. Perry said because of the U.S. tax rules, before moving to the U.S. you should self any investments in an RRSP/RRIF with accrued gains, like securities that have gone up in value. “If you don't, you will be sub- ject to U.S. tax on those accrued gains,”’ she said. Mike Grenby is a Vancouver- based columnist and independent personal financial adviser who will answer your questions as space allows in his column. Write to him c/o North Shore News, 1139 Lonsdale Ave., North Vancouver V7M 2:4. un Effort OMIMUR pour cesf ogements Toutes nos félicitations! Grace au parrainage eta l engagement de Mt. Seymour Lions Club. l ensemble résidentiel Lions Terrace a pu étre achevé a North Vancouver, les familles de se procurer un logemen converahbic sur le marché privé. Crest dans un effort concerté que le gouvernenient fédéral et la province ont accordeé les fonds nécessaires ala réalisation de Lions Terrace, Cet ensenible d habitation s‘inscrit dans le cadre de notre objectif commun qui est Coffrir a fous NOs CHOVENS [th logement str et abordable otc fait bon vivre en toute sécurité, dis BEE os yn arr ishonarable Alin Redway Mintre tf tat Hhabitsnert fat we eae! gh Lhonorable Nocnan Jacobsea Sista des Setvices sea nn ed dir beperent Cet aménagement résidenticl de 45 logements logera Hl Hy 1 H } H | 1 [ Canad | 1 YEAR TERM DEPOSIT 983-3773 Lonsdale Quay Next to Seabus North Vancouver F Citizens Trust AVEMIBER CANADA Dp INST RK ANCE CORPORATION If you’re asking how the proposed GiST will affect prices, 2, we're here to tell you. Call us toll-free Monday to Friday 9am-9pm. 1-800-668-21 The answer is to call your GST Consumer information Office. Hearing Impaired 1-800-465-7735 Beg Government of Canada Gouvernement du Canada Canada Congratulations! Through the sponsorship and connnitment of the Mt. Seymour Lions Club, the Lions Terrace hexsing project has been completed in Nori Vancouver . This 45 unit development will provide homes for families who cannot sind suitable shelter on the private market. Working together, the federal and provincial govern- meats have provided the fading for Lions Terrace. This project contributes to our shared goal of providing a safe, secure and affordable living environment for ali our cszens. The Honodratle laa Red win Mineterot Stan ciomang RE sen et sents ar sia, umd SSacb aes eats The Honvucable Naraiia dacebsen Nfrister ot Seagal Service sit Peasy mis X a. BCR Canada