Canadians: RRSP's and RESP's what to do?

[4togo]

What to do with these? We are planning being this our last move and to stay put in NZ for days to come (but.....!?). Our financial advisor recommends says that RESP's are not collapsable until ten years in effect. We started at the births of our kids 4 and 6.

Also he recommends RRSP funds to be paid out in sums of ten thousands dollar annually to escape having to pay tax on it. However, will we be dinged for this in NZ as it seems to me that the annual amount coming our way in NZ will be taxed as income. If so, opting for collapsing the RRSP's, paying the penalty (I believe 25%) and transferring the moneys at once to put in a Kiwi Saver plan seems less of a headache.

Any recent experiences that you are willing to share? Greatly appreciated.

[Millieandme]

If you are planning to just put the money into Kiwisaver as retirement savings, why not leave the funds in the RRSP in Canada. The investment options are wider so the returns will be similar and the money would be there for when you needed at retirement. The tax implications are pretty much the same whether you do it now or later. And if you do decide to move back, you wouldn't have paid a lot of taxes unnecessarily.

The RESP is slightly different. Have you checked if the funds can be used at foreign universities? You might be able to leave the funds in the plan and use them as they are intended, to pay for education expenses your children will have here in New Zealand.

[Super_BQ]

I would strongly stay away from Kiwi Saver. You'll find the RRSP will outperform it hands down. The reason is that corporate tax rates in Canada are far lower than NZ corporate tax rates. In a few years time Canadian corp. tax rates will go down to 15% while in NZ, they struggle to match Australia's 30% tax rate. So indirectly being shareholders (in the RRSP fund), it's going to be far more profitable having $ in a Canadian corporate company.

I know some kiwis will find what I say hard to believe so they can read this:

http://www.canadabusinesstax.com/cor...ome-tax-rates/

which is why I laughed when NZ dropped their company corp. tax rate from 33% to 30%.

Beware that when you become a NZ resident, there are foreign asset disclosures where the paper gains are taxable. The threshold is $50,000 NZD where you have to report it's gain. In previous year postings, i've voiced my disapproval of this tax as it does not credit the person in years where a paper loss can exist but all the years it shows a gain - it's locked in a tax grab.

Kinda makes you wonder if you were to start all over again, you would put it in a TFSA - then you wouldn't have any issues withdrawing & the gains are 100% tax free.

[James 1077]

Beware that when you become a NZ resident, there are foreign asset disclosures where the paper gains are taxable. The threshold is $50,000 NZD where you have to report it's gain. In previous year postings, i've voiced my disapproval of this tax as it does not credit the person in years where a paper loss can exist but all the years it shows a gain - it's locked in a tax grab.

That is only true if you use FDR for your calculation - which most people do as it is simple. Much of the time though you are better off with one of the other 5 calculation methods.

Also note that you can choose to have 4 NZ tax-free years on overseas investments from when you become an NZ resident so you have some time to decide what to do with the funds before you start paying NZ tax on them (but if you go down this route then you won't be eligible for tax-credits - so again you should do a quick calculation on which way you'll be better off)

[Addicted to NZ]

What to do with these? We are planning being this our last move and to stay put in NZ for days to come (but.....!?). Our financial advisor recommends says that RESP's are not collapsable until ten years in effect. We started at the births of our kids 4 and 6.

Also he recommends RRSP funds to be paid out in sums of ten thousands dollar annually to escape having to pay tax on it. However, will we be dinged for this in NZ as it seems to me that the annual amount coming our way in NZ will be taxed as income. If so, opting for collapsing the RRSP's, paying the penalty (I believe 25%) and transferring the moneys at once to put in a Kiwi Saver plan seems less of a headache.

Any recent experiences that you are willing to share? Greatly appreciated.

That is strange cause our financial advisor and accountant, advised us that it normally is 25% for RRSP. But if Canada has a Tax Treaty with the country you are moving to then you can get 15% (NZ and Canada have a Tax Treaty).
They also said (financial advisor and accountant)...doing it in one lump sum, shouldn't be an issue.

http://www.cra-arc.gc.ca/tx/nnrsdnts.../lvng-eng.html

Part XIII tax

Part XIII tax is deducted from the types of income listed below. To make sure the correct amount is deducted, it's important to tell Canadian payers:

* that you're a non-resident of Canada for tax purposes;
* your country of residence.

The most common types of Canadian income subject to Part XIII tax are:

* dividends;
* rental and royalty payments;
* pension payments;
* Old Age Security pension;
* Canada Pension Plan and Quebec Pension Plan benefits;
* retiring allowances;
* registered retirement savings plan payments;
* registered retirement income fund payments;
* annuity payments;
* management fees.

Note
The interest that you receive or that is credited to you is exempt from Canadian withholding tax if the payer is unrelated (arm's length) to you. For more information, see our Non-resident tax calculator or contact the International Tax Services Office.

If you receive Canadian income that is subject to Part XIII tax:

* Canadian payers, including financial institutions, must deduct Part XIII tax when the income is paid or credited to you.
* The Part XIII tax deducted is your final tax obligation to Canada on this income (if the correct amount is deducted).
* Part XIII tax is not refundable. Therefore, do not file a tax return to report the income, except in two situations when you can elect to file a Canadian tax return.
* The usual Part XIII tax rate is 25% (unless a tax treaty between Canada and your home country reduces the rate).

Unfortunately the Treaty Country list is not working on Revenue Canada's Site...but there is a treaty listed on IRD site.
http://taxpolicy.ird.govt.nz/tax-treaties/canada


As for the RESP's...I don't have a clue.

[4togo]

Thank you all. This is very helpful. It looks like Canada and NZ have a tax agreement so it is probably 15% for the RRSP's. Even though it may seem sensible to have it just sit and wait another 25 years or so, I am leaning towards just taking some with me and taking a hit. Who knows what legislation arena's and market landscapes in Canada and NZ on this front will look like in years to come?

In our case, we also have some funds in a government pension plan from the Netherlands. Although this will be a very meager feast. I don't think that I want to be bothered at age XXX to figure out how to access my funds from three continents (if I still can or will be able by then that is).

[Super_BQ]

Thank you all. This is very helpful. It looks like Canada and NZ have a tax agreement so it is probably 15% for the RRSP's. Even though it may seem sensible to have it just sit and wait another 25 years or so,

Read carefully, the 15% with-holding tax applies to only income

The most common types of Canadian income subject to Part XIII tax are:

* dividends;
* rental and royalty payments;
* pension payments;
* Old Age Security pension;
* Canada Pension Plan and Quebec Pension Plan benefits;
* retiring allowances;
* registered retirement savings plan payments;
* registered retirement income fund payments;
* annuity payments;
* management fees.


It does not say tax will be paid to CAPITAL GAINS (paper profits) held within the mutual fund. So if your RRSP is a pure capital growth fund (which pays no dividends or interest or annuities), then there is no sense in having to sell it by locking in the gains and paying the tax.

[Addicted to NZ]

I am just going by the Canada Revenue Agency's -

Non-Resident Tax Calculator

For example on $100,000 Canadian



Unless I misunderstand what exactly "Lump sum pension payment from an RRSP" is , then according to Revenue's Canada's very own calculator - Amount Payable is 15% ($15,000). But I could be wrong...hehe (well) or Revenue Canada could be wrong. It certainly looks pretty simple...but I know how simple this could turn out to be.



I don't see anything specifically saying RESP's....unless they are in the etc area.

[Super_BQ]

RESP or not, we need to clarify "lump sum payment" vs. "paper profits". Lump sum usually means an annuity payment or typically, the closing of the account and liquidating all the investments by turning it to cash. Whereas in paper profits, the gains are not realised year after year UNTIL it's sold by turning it to cash.

As a matter of interest, the calculator above also allow credit to a non-resident if ie, the closing of a pension fund (which results in a lump payment) becomes taxed in NZ. IRD in NZ taxes overseas funds (if the total investments exceed $50K NZD) on amounts that exceed a prescribe % threshold (regardless in paper profit form or not). So this calculator compensates for being double taxed.

The other aspect with this calculator is IMO, it would mostly be useful to Canadian non residents living abroad where their Cdn sources end up being taxed in the country they are living in. No one likes to be double taxed on income. Even worse, no one likes to be taxed on paper profits. Even more worse, a place like NZ that taxes only on paper gains but no credit given for paper losses.

What makes RESP different to RRSP is the fund is setup for the purpose of paying for education in the long term future to a beneficiary. The person that pays into the RESP does not benefit (as in the case for RRSPs for retirement) and because there is no 'gift duty' or tax payable by gift (in a non-arms length transaction) in Canada, then the CRA will treat RESPs different to other forms of investments. To achieve the same results in NZ by RESP would be to setup a trust - but we all know having trusts involves lawyers and accountants (which incurs annual fees) whereas RESPs are self managed like a bank account. But I heard there has been recent changes in NZ taxes to abolish the gift duty. I'll need to read the details but I do know in Canada, parents can gift any amount of $ to their children without triggering any taxes (ie. win the lottery and gift it to their relatives).

Something more advanced. When Canadian banks and financial institutions issue tax slips (T4, T5, etc.) each year, the slips show several details such as how much income is earned by the RRSP / RESP, etc. Details on capital gains growth etc. So no calculation is required by the owner of the fund to work out their tax liability. They just input the figures off the slip into the online calculator. Whereas in NZ, all sources are taxed directly and is up to the person to trust that the calculations is correct (ie. if they're looking for a tax refund). This is why in NZ there has been a big marketing campaign for residents to get a 'tax refund'. All these years and it works out that most who don't file a tax return in NZ may be over paying their income tax.

[Super_BQ]

Also he recommends RRSP funds to be paid out in sums of ten thousands dollar annually to escape having to pay tax on it. However, will we be dinged for this in NZ as it seems to me that the annual amount coming our way in NZ will be taxed as income.

Your financial advisor is correct. But it all depends how much you have invested in the RRSP? $100K would take 10 years @ $10K per year to liquidate out. This is not factoring that over 10 years, the investments will of compounded a gain. But if you can take the NZ 4 year tax free status and get the RRSP down to under $50K NZD - you may walk away without paying a penny of tax. Pay close attention to the T4 / T5 slips of the RRSP as you must clarify actual gain. This is ONLY the gain from investment (ie. while may have $500 K in an RRSP, they may of contributed $400K over 5 or 10 years).