Canadian RRSP income whilst living in Germany

Hi,

I have been living and working in Germany since 2000. In 2004 and 2005, my wife and I took out some of our RRSP money from accounts in Canada. The banks withheld 25% for tax. There is a tax treaty between Canada and Germany, and it mentions that you can detertmine where the tax is paid on income in Canada while you live in Germany.

I have given the paper work to a tax specialist in Germany, and he indicated that Germany would calculate the tax based on the worldwide income. Does that mean that the German government will want the difference between the 25% I paid in Canada, and the 43% I would have paid here? Does the tax treaty not allow me to exclude the Canadian income from my German income?

Has anyone else had Canadian RRSP income while living in Germaany?

Thanks,

Ken

I am not sure, I know that I from previous years taxes, I never had to claim what I earned here, but for RRSP's I am not sure... maybe if you contact Revenue Canada. They might be able to help you.

what is canadia?

I'm not *100%* sure.

I have an RRSP in Canada but I have also severed my ties with Canada so that I no longer have to do taxes there. My RRSP matures in 2007 and I was thinking about cashing it out but now you mentioning the bank taking 25% off kind of scares me.

That said, I don't really generate alot of income from it. (its a very small amount - i started it after I left university and then just left 2 years later). In all, the money I would save by cashing it out while my ties are severed is less than the money i WOULD have gotten in tax credits had I not paid off my student loans after I severed so its not like I gained much by severing my ties in the first place.

I would be really interested though in hearing more in what you find out because its a very confusing mess and I constantly get different answers from people here and there.

if you want, I know an international accountant in Toronto that can probably give you the right answer. He has really helped me and was the only one who got my husbands and mines taxes straightened out when we lived in 2 countries and 3 provinces plus a marriage and an international move, all in the same year.

Hi,

I will let you know what happens. I am waiting to hear from the Freising tax office as to how much I will owe them.

Thanks,

Ken

okay, confused, since when do RRSP's mature?

I will give you credit for the 2 country thing, but heck, any CD rom software program will help you with the different province tax stuff. I have been using the Revenue Canada Software for about 9 years now, and its great! Saves the crap out of Accounant fees and helps also with the move deduction stuff (used it in 98 when I moved from Germany back to Can after 4 years of living here, and no problems at all). My parents, both in pension use it too. You should really check into it to save you costs.

I dont know 'since when' they mature - all I know is that if i took out money from it, besides being taxed, there would be a penalty.

I don't really need credit, but I used the tax software and right away when you set it up it asks you which province you are living in. If you don't know the rules, having not done it before, you don't know which province to claim under. When I called Revenue Canada, they sent me another 16 page forum asking to divide everything up between the two provinces - it had to be done by hand, or else overide pretty much everything manually on the tax software, which is for all purposes by hand anyways. It was a HUGE pain in that ass, esp since i was filing for my husband at the time, we were not married for most of that year, he is NOT canadian but Swiss, but doesn't file Swiss taxes (doesnt have to), and then we moved to Germany.

So there are about 1000 reasons why the software isn't exactly tailor made for our circumstances, but the point is moot since I severed ties anyways and no longer have to file Canadian taxes.

And the accountant didn't charge me anything. It all was a no-brainer for him and I swapped picking brains with him as he had business trips in Germany that year so I helped him figure out his transportation between cities.

even in Canada there is a penalty to take out RRSP's early... that means before you are actually of retirement age.
You can use RRSP's without penalty to purchase a house for first time buyers (up to 15000) but you do have to pay it back in 15 years.

I do believe Revenue Canada has a web page that has alot of fact questions on it, that might be your best bet to check out.

Maybe I can help...

RRSPs never mature. You likely have the money in your RRSP invested in a GIC, a bank certificate guaranteed by the bank and the CDIC, which pays a fixed rate of interest and which, if you tried to cash out early, would have an associated penalty.

RRSPs always have `penalties` when you withdraw money from them, even when you retire. The money you take out of your RRSP (or your RRIF after retirement) is taxed at your normal income tax rate. The assumption is that after you retire, when you convert the RRSP (savings plan) to a RRIF (income fund) that your tax rate will be lower than when you are saving for retirement. So the so-called penalty, is just the taxes which you must pay on all income.

Now to the meat of the question. If you withdraw money from your RRSP whilst in Germany, whether you file in Germany or in Canada, you will have to add the money that comes out of your RRSP to your German (or Canadian) income for that year and pay tax on it. The amount you pay in withholding tax will obviously reduce the amount that must be paid when you file your taxes. If your income is below the level that would require you paying the (for example) 25% tax withheld, then you will be able to claim that tax back.

The simple answer is get professional advice from someone familiar with both German and Canadian tax issues. Do not make financial decisions from information posted on internet chat sites.

Thanks, but I don't need to check it out. I have the documents sitting right in front of me, with the 'maturity date' (those words) set for March 2007 - exactly 5 years after I started it. As I already stated, before that date, the BANK charges me a surcharge for removing my RRSP from their clutches in addition to the taxes payable to the government owing on the money itself.

If I had a scanner, I'd show it to you, just because its irksome when someone tells me I have something that doesn't exist when its sitting right in front of me. And I think I have already mentioned that I have talked to both an accountant and revenue canada about this.

As far as claiming it in Germany, my personal income is sooo tiny here and the actual RRSP itself is so tiny that my husbands financial planner here in Germany said it falls beneath the amount required to claim.

Again, the amount of money I'm talking about is so small its not even worth discussing. I posted in here not to discuss my own finances since they are well under control, but to find out what happens with the OP's situation.

Was the money held in a bond or GIC? as was stated RSPs don't mature(unless your a senior and then it converts to a RRIF). RSPs are simply a tax deferal not a tax break. You defer the taxes untill you withdrawal it.

If the amount is so small why bother even declaring it here?

We cashed our RSP quite a few years ago and got 75% of it (compared to 46% that would would have gotten back if we took it out while still residents of Canada) incidentally we didn't bother declaring it. Wasn't worth the hassle.

The 25% is withholding tax. That's the price you pay for not living and paying taxes in Canada. Withholding tax is 15% on dividends.

then it must have been a GIC (like Tim and Tim Horton's Man suggested). I have some RRSP's in GIC accounts- but my advisor just turns them over into more RRSP's either into GICs or another investment depending on the interest rate.

Actually this thread has made my think about emailing my Advisor and see what is happening with my money (not that I had alot in there).

Thanks for sharing that. I am trying to decide what to do with some of my investments, and that could be a deciding factor for me in my push to move back to Canada.

You are confusing apples and oranges.

When you take money out of your RRSP account, you are taxed as if the money was income. You are, in effect, paying yourself. Income is taxed at whatever your going tax rate is, and if you have other sources of income (from a job or from real estate or from other investments) the income from your RRSP will be added to this.

The dividend withholding tax is a whole other kettle of fish, and has nothing to do with the RRSP withholding tax. If you have dividend income inside your RRSP it is, as is everything in an RRSP, tax free. If you have dividend income outside of your RRSP (other investments listed above) it is taxed at a lower rate than is normal income (from your job, from interest on bonds or GICs, etc.). If you happen to live outside Canada, there will be a withholding tax on this dividend income...

Long story short, if you have nothing outside of your RRSP, this does not apply, and if you have dividends inside your RRSP, they will be tax free unless you pull them out in which case it will be the normal 25% withholding tax.



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