# Returning to Canada and RRSP contributions



## barleydrinker (Nov 18, 2017)

All,

I am returning to Canada after 12 years abroad living in countries that have tax treaties with Canada. I am currently not a tax resident of Canada.

I am returning this summer, so mid tax year (which if I recall correctly is the calendar year).

My question is how much RRSP contribution room do I have the first year? Is it 0? Everything I have read is that your contribution limit in the current year is dependent on your income (on your canadian taxes) the previous year.

Thanks.


----------



## AltaRed (Jun 8, 2009)

Nothing in the current year. RRSP contribution room is based on 'earned income' the prior year, and not just any income, but 'employment earnings'.


----------



## Koogie (Dec 15, 2014)

The good news is you will be able to make a TFSA contribution for this year though.


----------



## barleydrinker (Nov 18, 2017)

Sucks about RRSPs.

Can you tell me what's the diff between RRSP and TFSA? and will I have full room for it?


----------



## Spudd (Oct 11, 2011)

RRSP you get a tax deduction when you contribute, and you pay tax on it like regular income when you withdraw. 

TFSA you don't get a tax deduction when you contribute, and you don't pay tax when you withdraw. 

On both, there's no tax on whatever happens inside the account (ie dividends, capital gains). 

Your TFSA room will be full for the current year you immigrate to Canada. See this page for reference:
https://www.canada.ca/en/revenue-ag...s/tax-free-savings-account/contributions.html


----------



## Eclectic12 (Oct 20, 2010)

AltaRed said:


> barleydrinker said:
> 
> 
> > ... My question is how much RRSP contribution room do I have the first year? Is it 0? Everything I have read is that your contribution limit in the current year is dependent on your income (on your canadian taxes) the previous year.
> ...


I suspect that if there is unused RRSP contribution room from what Canada was left then that will be what is available.

Once there is earned income after returning (with all the factors such as a pension adjustment that may reduce it) then there may be some added for use in 2018.


Cheers


----------



## Eclectic12 (Oct 20, 2010)

barleydrinker said:


> ... Can you tell me what's the diff between RRSP and TFSA? and will I have full room for it?


An RRSP defers tax until the $$ are withdrawn (i.e. withdrawals have to be reported as income). 
There may be a tax refund should the tax paid during year be too much, after the RRSP contribution is deducted from income. Or the RRSP contribution might be made through an employer to a company Group RRSP where the employer knows to put the full amount into the Group RRSP so that the tax refund has already happened.

A Tax Free Savings Account (TFSA) is Canadian tax free. There is no tax refund but when withdrawing $$, there is no income to report which also means no Canadian tax to pay. I say Canadian tax as the US tax system does not recognise the TFSA as a retirement account so the US withholding tax on US stock dividends is taken where the same US stock held in an RRSP is exempt.
http://www.moneysense.ca/save/investing/investing-u-s-stocks-in-a-tfsa/

It sounds like you emigrated from Canada before the TFSA was introduced in 2009 so there won't be any TFSA contribution room carried forward. Being a non-resident that has a TFSA means no contribution room is being granted, no contributions can be made but the TFSA can still be held and withdrawn Canadian tax free from.

If so, you will be starting from scratch so as long as you are 18+ when becoming a Canadian resident - you will have $5.5K of TFSA contribution room for 2018.
https://www.taxtips.ca/tfsa/contributions.htm


For some reason people like to over complicate tracking TFSA contribution room by adding up all the annual amounts while ignoring contributions made and/or missing the "next calendar year" part of "this year's withdrawals become more TFSA contribution room next calendar year". I recommend treating TFSA contribution room like balancing a cheque book. 

In January, take whatever was carried over that has not been used last year, add to it the current year allotment plus last year's withdrawals. As you make contributions, subtract these from the total. If you make withdrawals, make a note to remind yourself to add this amount back in the following Jan.

The potential problem is that if you over contribute, the honest mistake penalty is 1% of the over amount per month. The financial institutions are required to send in their info around March the following year so there might be fourteen months or more of penalties charged before CRA sends a letter about it. Should CRA decide the over-contribution was to beat the system, the penalty can be as much as 100% of the gains.

The other misunderstanding is that "Account" does not mean savings deposits only. Like an RRSP, one can open multiple TFSAs where one may be a savings account for emergency funds while the other is a brokerage account that holds stocks, bonds, GICs, MFs, ETFs etc.


Cheers


*PS*
Lots of debate about when to use an RRSP versus a TFSA.
http://www.moneysense.ca/save/investing/rrsp/rrsp-vs-tfsa-which-is-right-for-you/


----------



## Eclectic12 (Oct 20, 2010)

Spudd said:


> ... Your TFSA room will be full for the current year you immigrate to Canada ...


The OP is asking what a TFSA is so I suspect they left before the TFSA came into being. This would make this true.

However, others that may not be in this situation so I though I should point out that my understanding is that already earned TFSA contribution room that has not been used (i.e. carried forward) as well as any contribution room from TFSA withdrawals while being a Canadian non-resident would be added to the annual TFSA allotment of the calendar year one becomes a Canadian resident.
http://blog.modernadvisor.ca/leaving-canada-rrsp-tfsa-non-resident/


Cheers


----------



## twa2w (Mar 5, 2016)

You may have RSP contribution room if you had earned income prior to leaving Canada, and accumulated RSP room that you did not use.
Normally RSP room is based on your previous years earned income as other posters have pointed out. If you do not contribute to an RSP, that room accumulates and carries forward to future years. So possible you may have some contribution room available..


----------



## barleydrinker (Nov 18, 2017)

I did have earned income in Canada before I left. I had an RRSP in Canada (very small, about $5000) which has just been sitting their dormant. It was, in the end, a stupid idea to have taken it out. In any case, it has just been there for a long time.

So, I guess I just need to ask the CRA what my room is? is this easy information to get? It's been so long. I left Canada in Jan 2008. I am a citizen, but have been a non-resident for tax purposes since then.

So, indeed, I left before the TFSA. So, I assume I have no accumulated room, unless I get that just because I have a SIN, and am Canadian.


----------



## Eclectic12 (Oct 20, 2010)

Not sure if this is understood or not as you have been away for a while but where there are $$ in an RRSP, the contribution room to put the $$ in was used up.

It seems to me there are three sources of RRSP contribution room that you may be able to use immediately when you re-establish your residency in Canada.

The first is RRSP contribution room that has not been used. Having $$ in an RRSP means some contribution room has been used up (making an RRSP contribution uses up contribution room) so question is whether any RRSP contribution room was unused so that it has been carried forward to 2018, when you re-establish Canadian residency, including tax residency.

The second is where RRSP contributions were made but not deducted from income. For example, one may do a quick estimate of one's tax return then decide to contribute in Jan $10K to an RRSP. When the final slips are all in, one decides only $7K is needed to be deducted from income. For the remaining $3K, the RRSP contribution room has been used up but the deduction is carried forward indefinitely. It can reduce income/taxes the same as if the RRSP contribution then deduction was happening in the same year.

The third is where there was earned income reported on the final tax return for the tax year you emigrated (likely a partial Canadian resident, partial NR year). You likely didn't make RRSP contributions after becoming a NR but the final tax return for a 2008 emigration wouldn't be filed until 2009. I don't believe financial institutions allow NR's to make RRSP contributions but haven't checked it out.




barleydrinker said:


> ... So, I guess I just need to ask the CRA what my room is? is this easy information to get? It's been so long. I left Canada in Jan 2008. I am a citizen, but have been a non-resident for tax purposes since then.


I would think the numbers would still be in CRA's computers. I don't know though.

Since you have been a NR for so long, likely you will have to wait until the first tax return is filed to sign up for CRA's myAccount online access. It gives a report of RRSP and TFSA contribution room. You do have to be careful as the financial institution reporting to CRA is something like once a year where their numbers may be totally different that what is available to you at a particular point in time. I track mine as each transaction increases or decreases the amounts so that I have a current number. Plus it helps confirm mistakes by other parties are known about.
https://www.canada.ca/en/revenue-ag...services-individuals/account-individuals.html




barleydrinker said:


> ... I left before the TFSA. So, I assume I have no accumulated room, unless I get that just because I have a SIN, and am Canadian.


Not sure why you are assuming as the links provided spell out that one of the requirements to be granted TFSA contribution room is being a Canadian resident.

A Canadian as well as a Philipino nanny working in Canada will be granted TFSA contribution room, assuming the other criteria (18+ etc.) are met.
Either one being a resident of the Philippines with no residential ties to Canada means no TFSA contribution room will be granted.

As the TFSA came in after you became a Canadian NR - then becoming a Canadian tax resident in the summer where you are 18+ means you have $5.5K of TFSA contribution room. It is a great tax benefit so take the time to learn about it, decide how many TFSAs to open as well as what investments each TFSA will allow.


Cheers


*PS*
The TFSA contribution rule that says last year's withdrawals are added back as contribution room the following year is particularly useful.
I opened a savings account type TFSA and a brokerage TFSA. As the taxable brokerage income as well as the TFSA income has grown, I need less in the savings account TFSA.

Using this rule probably allows me to withdraw in late Dec then re-contribute it to the brokerage TFSA in Jan with no worries about an over contribution penalty. Where $5K was withdrawn in late Dec, Jan has $5K of TFSA contribution room in addition to the annual TFSA allotment.


----------



## gardner (Feb 13, 2014)

Eclectic12 said:


> It seems to me there are three sources of RRSP contribution room


Is the lifetime overcontribution amount of $2,000 effective immediately? That would be a fourth. You would not be able to deduct it, of course.


----------



## Eclectic12 (Oct 20, 2010)

Good catch ... I believe this would work.

I have had family/co-workers use the over-contribution allowance then fail to account for other sources of RRSP contributions - triggering the RRSP over contribution penalty.
I don't personally use it for this reason.



Cheers


----------

