Moving from Canada to Australia: Tax Treaty, RRSP and Pensions

When does Canada stop taxing me after moving to Australia?

Canada taxes your world income until the day you become a non-resident. For most people that is the latest of the day you leave, the day your spouse or common-law partner and dependants leave, and the day you become a resident of Australia (CRA: Leaving Canada). By then you must have cut your significant residential ties: your home, your spouse or common-law partner, and your dependants (CRA folio S5-F1-C1, ¶1.10–1.11). If you keep a home available to you, or your spouse or dependants stay, in Canada, you generally stay a factual resident, even while living in Australia. A home rented to an unrelated tenant at arm's length is usually not counted as a significant tie (¶1.12).

After that day, Canada taxes only Canadian-source income, mostly through withholding by the payer:

Sources: the treaty's Articles 10, 11 and 18 (Finance Canada), Service Canada's country table and CRA IC76-12R8.

What makes a move not simple: a home kept in Canada, a spouse or children staying behind, a Canadian corporation you own, a large RRSP or non-registered portfolio, or a move date that straddles a job or a property sale. Each one changes when your residency ends or what the departure return must report.

What to gather: your move date and Australian visa type, what happens to your Canadian home (sold, rented or kept empty), where your family lives, a list of investments with their values on the move date, and every Canadian pension, RRSP, RRIF, TFSA and bank account.

The exact date your residency ends has its own guide: the date you become a non-resident.

How does the Canada-Australia tax treaty tie-breaker decide residence?

The tie-breaker applies only if both countries treat you as a resident under their own law. First, the treaty does not count you as a resident of a country that taxes you only on income from sources there (Article 4(2)). If Australia taxes you only on Australian-source income, for example under some temporary visas, you cannot use the tie-breaker or the treaty rates as an Australian resident; this is why your visa type matters. The treaty then asks two questions in order (Article 4(3)):

1. Permanent home. If you have a permanent home available in only one country, you are a resident of that country alone.
2. Closer personal and economic relations. If you have a permanent home in both countries, or in neither, you are a resident of the country with which your personal and economic relations are closer.

The Canada-Australia treaty stops there. Unlike many other treaties, it has no habitual-abode or citizenship step.

If the tie-breaker sends you to Australia, section 250(5) of the Income Tax Act deems you not resident in Canada for income tax purposes, and the emigrant rules apply (CRA: Leaving Canada). The CRA puts the burden on you to show that Australia taxes you as a resident (folio S5-F1-C1, ¶1.43). A home in Canada that stays available to you can keep Canada in play under the first test.

For an opinion from the CRA, see asking the CRA to decide your residency.

What departure tax applies when I move to Australia?

On the day you become a non-resident, Canada treats you as having sold most of your property at fair market value and bought it back at that value (CRA: Dispositions of property). Any accrued gain goes on your final Canadian return.

The deemed sale does not cover Canadian real property, property of a business you keep running through a permanent establishment in Canada, RRSPs, RRIFs, TFSAs, pension plans and some other registered plans. Property you owned when you last became a resident of Canada, or inherited afterward, is also left out if, when you left, you had been resident in Canada for no more than 60 months in the preceding 120 months. If your property was worth more than $25,000 in total, you also file Form T1161 (CRA: Leaving Canada).

The final return, Form T1161 and paying the tax later with Form T1244 are covered in leaving Canada.

How does the treaty election give me a new cost base in Australia?

Article 13(6) of the treaty lets you elect to be treated in Australia as if you sold and reacquired the property at its fair market value just before you became an Australian resident. It applies only if you became resident in Australia immediately after leaving Canada, and only to property Canada taxed on the deemed sale; Canadian real estate and RRSPs are not covered. The election exists because Canada already taxed that gain on departure. Without it, the same gain could be taxed again when you later sell.

The election is made in Australia, under Australian rules, so the treaty text does not say how or when. Keep the values you used on Form T1161 and the departure return; they are the evidence for the value you elect.

How much does Canada withhold on pensions, RRIF payments, CPP and OAS paid to me in Australia?

Canada may tax a pension or annuity paid to you in Australia, but the treaty caps the tax at the lesser of 15% of the payment and the tax you would pay on it as a Canadian resident (Article 18(2)). Service Canada lists 15% for OAS, CPP and QPP pensions, and CPP and QPP death benefits, paid to residents of Australia (Service Canada). If your income is high, part of your OAS can be taken back through the OAS recovery tax; Service Canada says living in a treaty country may exempt you.

Once the payer knows you live in Australia, it withholds at the capped rate. The "lesser of" test can lower the tax further only when your Canadian income is small. Two routes recover tax withheld above what you owe: a section 217 return, which taxes the pension as if you were resident, covered in the non-resident return for pension and RRSP income, or Form NR7-R, which refunds Part XIII tax withheld above the treaty rate, filed within 2 years after the year the tax was paid (Income Tax Act s. 227(6)). Asking for a lower rate in advance with form NR5 is covered in lower withholding on Canadian pensions abroad.

What happens to a lump-sum RRSP withdrawal after I move to Australia?

The Canada-Australia treaty says "pensions", not "periodic pension payments", and it has no definition of pension. Under section 5 of the Income Tax Conventions Interpretation Act, "pension" in such a treaty means any payment under an RRSP, RRIF, registered pension plan or similar plan. On that reading, a lump-sum RRSP withdrawal or a large RRIF payment paid to a resident of Australia also falls under the 15% cap.

Treaties that cap only periodic pension payments leave lump sums at the full 25% rate; the Canada-Australia treaty is worded differently. The plan issuer decides what to withhold, so confirm the rate with the plan issuer before withdrawing, and give it proof that you live in Australia. If it withholds more than the treaty allows, the excess is refundable on Form NR7-R.

Whether to cash out before or after the move, and how Australia taxes the withdrawal, are separate questions: see RRSP cash-out before or after leaving Canada. Keeping or adding to an RRSP or TFSA after you leave is covered in contributing to an RRSP or TFSA after leaving Canada.

How much does Canada withhold on dividends and interest paid to me in Australia?

Canadian dividends paid to an individual in Australia are taxed at 15% instead of 25% (Article 10(2)).

Most interest needs no treaty: Canada does not withhold on interest paid to a non-resident by an unrelated payer, unless it is participating debt interest (Income Tax Act s. 212(1)(b); IC76-12R8, ¶32). Interest from a related payer, such as your own Canadian corporation or a family member, is capped at 10% (Article 11(2)).

To get the treaty rate, tell your bank or broker you moved and give it form NR301: see Canadian bank and brokerage accounts after leaving.

Does the Canada-Australia social security agreement help me keep OAS?

Yes, for eligibility, not for the amount. Old Age Security paid outside Canada normally needs 20 years of residence in Canada (Service Canada). If you do not qualify on Canadian years alone, the agreement lets Canada count your years of residence in Australia after age 18 as Canadian residence. It also counts those Australian years toward CPP eligibility if your CPP contributions alone fall short (Canada-Australia agreement).

Each country still pays based only on your periods under its own program. More Australian years can open the door to OAS abroad; they do not raise the OAS amount.

Who taxes support payments between Canada and Australia?

Under Article 18(3) of the treaty, alimony or other maintenance arising in one country and paid to a resident of the other is taxable only in the country where it arises. The treaty does not say where a payment arises; it is usually read as the payer's country, but that is not settled in the text.

If a payment arises in the payer's country:

Because the treaty leaves the source open, check it before you rely on a deduction or exclusion.

Example

All figures are in Canadian dollars and illustrative.

A nurse moves to Melbourne

A nurse sells her Halifax condo, ships her belongings and moves to Melbourne in March with no home or family left in Canada. She owns $120,000 of mutual funds bought for $90,000. Canada treats the funds as sold for $120,000 on her departure date, so her final return reports a $30,000 capital gain. She files Form T1161 because her property is worth more than the threshold. Article 13(6) lets her elect, under Australian rules, to be treated in Australia as if she bought the funds at their value just before she became resident there.

A retiree in Brisbane draws from a RRIF and an RRSP

A retiree living in Brisbane takes $20,000 a year from a RRIF. Canada withholds 15%, or $3,000. In a later year, she also withdraws $80,000 in one lump sum from an RRSP. Because the treaty does not define pension, the Income Tax Conventions Interpretation Act reads an RRSP withdrawal as a pension, which points to a 15% cap ($12,000) instead of 25% ($20,000). The plan issuer decides what to withhold, so she confirms the rate in writing before she withdraws.

A retiree with 14 Canadian and 10 Australian years

A man lived in Canada for 14 years after age 18, then 10 years in Australia. On Canadian years alone he falls short of the 20 years needed to receive OAS outside Canada. Under the social security agreement, his Australian years can count toward the 20 years, so he may qualify to receive OAS in Australia if he meets the other conditions. The amount is still based on his 14 Canadian years, and Canada withholds 15% of each payment.

Different for you?

• Your home, spouse or children stay in Canada: you may remain a Canadian resident, and the tie-breaker becomes the whole question. See family stays in Canada while you work abroad and Canadian tax residency.
• You rent out your Canadian home: non-resident rent has its own withholding and return. See non-resident landlords.
• You sell your Canadian home after you leave: see selling your home after leaving Canada.
• You already moved and did not file a departure return or Form T1161: late-filing penalties can apply. See late departure forms and penalties and filing your departure return from abroad, or have the catch-up handled through our cross-border tax service.
• The CRA still treats you as a Canadian resident: see the CRA still thinks you are a resident.
• You own a Canadian corporation: how you take money out after you leave, and whether running it from Australia moves its residence, change the tax on both sides. See paying yourself from your corporation after moving abroad and corporation residency after the owner moves abroad, or get it reviewed through our cross-border tax service.
• You hold a large portfolio or a large RRSP: the departure return, the Article 13(6) election and the withdrawal plan interact across two countries, and a wrong value or rate is hard to fix later. Get it reviewed through our cross-border tax service.
• You are moving somewhere else: see the other country pages, such as moving from Canada to the UK or moving from Canada to the US.