Advisor’s Edge – 3 exceptions for deducting cross-border retirement plan contributions
We are very pleased to share that Jonah Ravel and Matt C. Altro were asked to contribute an article for Advisor’s Edge, which was published on June 12, 2018. Their article titled “3 exceptions for deducting cross-border retirement plan contributions” explains how three categories of people: workers on short-term cross-border assignments cross-border commuters; and US citizens living and working in Canada, benefit from having the ability to deduct contributions made to a retirement plan in the other country from their taxable income.
To read the article you can see it in part below, or click here to view it on the Advisor.ca website.
3 exceptions for deducting cross-border retirement plan contributions
Jonah Ravel and Matt C. Altro
June 12, 2018
Unfortunately for cross-border clients, Canada and the U.S. generally do not allow taxpayers to deduct contributions made to a retirement plan in the other country from their taxable income. There are, however, three exceptions.
These three exceptions became effective in 2009 as part of the Fifth Protocol of the Canada-U.S. Tax Treaty. The changes benefit three categories of people:
- workers on short-term cross-border assignments;
cross-border commuters; and
- U.S. citizens living and working in Canada.
- In all three categories, the changes to cross-border deductibility only apply to
qualifyingretirement plans (QRPs).
Before moving on, it’s important to note that Americans living in Canada can generally benefit from making RRSP contributions, even though they can’t deduct those contributions on their U.S. returns. That’s because while RRSP contributions may lower Canadian taxable income below the U.S. level, the higher Canadian tax rate will usually still provide enough foreign tax credits to fully offset the U.S. tax payable. That said, U.S. taxpayers should avoid making RRSP contributions that are so large that they would cause U.S. tax to become payable due to insufficient foreign tax credits—doing so would cause double taxation.