Moving Back to India from Canada: Tax and the Canada-India Treaty

When does Canada stop taxing you after moving back to India?

Canada taxes you as a resident until the day you leave Canada and sever your residential ties, then only on Canadian-source income. The CRA calls you an emigrant from that date, and you enter it on page 1 of your final return (CRA: Leaving Canada). If you keep ties but the Canada-India treaty makes you resident in India, you are a deemed non-resident instead (Income Tax Act s. 250(5)).

The CRA treats a home kept available to you, a spouse or common-law partner, and dependants left in Canada as ties that almost always keep you resident (Folio S5-F1-C1, ¶1.11–1.12). Whether your ties are cut is covered in Canadian tax residency; a formal CRA opinion is in asking the CRA to decide your residency.

What makes a move to India not simple:

• Two countries can tax the same gain. Canada taxes growth up to your departure, including on property you own in India. The treaty does not stop India from taxing it again when you sell, though Canadian law may then credit the Indian tax against your departure tax.
• No treaty cut for most of your income. Canada withholds its full non-resident rate on pensions, CPP, OAS and RRSP withdrawals, and individuals get no dividend reduction.
• Ties you keep. A home kept available to you or a spouse who stays usually keeps you resident. A Canadian employer is a lesser tie, weighed together with your others.

Gather your move date, what happened to your home, the value and cost of each non-registered investment and any property in India on that date, RRSP, RRIF and TFSA balances, pension, CPP and OAS statements, and proof of your residence in India (lease or home papers, Indian tax filings).

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

The treaty tie-breaker applies only if both Canada and India treat you as resident under their own laws. Article 4(2) of the Canada-India agreement then tests, in order:

If the tie-breaker sends you to India, Canada treats you as non-resident for all purposes of the Act from that time (Folio S5-F1-C1, ¶1.37–1.38). The onus is on you: the CRA assumes you are not resident in India for treaty purposes unless you show you are liable to tax there by reason of residence (¶1.43). Keep proof such as Indian returns and your lease or home records.

Departure tax on a move to India: why the treaty gives no step-up

On your departure date Canada treats you as selling most of your property at fair market value and buying it back, so accrued gains on non-registered investments are taxed on your final return (CRA: Dispositions of property for emigrants). Canadian real property, Canadian business property, RRSPs, RRIFs, TFSAs, pension plans, some other plans and employee stock options taxed in Canada are excluded. Property in India is not: a flat, land or Indian shares you own are treated as sold at their value that day. Property you owned when you last became resident (or inherited afterward) is excluded if you were resident no more than 60 months in the preceding 120 months.

The Canada-India agreement has no clause that makes India treat your departure value as your new cost. Article 13(2) says gains on most property "may be taxed in both" countries (treaty). Whether India taxes that growth depends on Indian law, which this page does not cover. If India does tax it when you sell, Canada may let you deduct the Indian tax on the pre-move part of the gain from your departure-year Canadian tax, up to the departure tax on that property (Income Tax Act s. 126(2.21)). That claim reopens your departure-year return, so large pre-move gains are worth settling on both sides before you sell.

You can defer paying departure tax with Form T1244 by April 30 of the year after departure, and Form T1161 is required if your reportable property was worth more than $25,000. The forms and final return are covered in Leaving Canada, Form T1161 in its own guide, and the deemed sale of a brokerage account in investment accounts when leaving Canada.

Does the Canada-India treaty cap Canadian tax on CPP, OAS, pensions and RRSP withdrawals?

No. Article 18 of the treaty says pensions arising in Canada are taxable only in Canada, with no rate cap, so Canada withholds its full rate of 25% (treaty; CRA: Rates for Part XIII tax).

The treaty does not define "pension", so Canadian law fills the gap: payments from a registered pension plan, an RRSP or a RRIF count as pensions for this treaty (Income Tax Conventions Interpretation Act s. 5). For these, the treaty gives the payment to Canada alone, so India is not meant to tax it again; how India applies this is Indian law, which this page does not cover. CPP, QPP and OAS are not on that list; Canada taxes them with no treaty cap either way. Service Canada lists India under "all other countries", with non-resident tax of 25% on OAS, CPP or QPP pensions and death benefits (Service Canada).

OAS has one more step. Because the non-resident tax on Canadian pensions in India is 25% or more, the OAS recovery tax (the clawback of OAS from higher-income pensioners) can apply, and you must send the CRA an Old Age Security Return of Income each year by April 30, or your OAS payments stop from July (Service Canada: OAS recovery tax).

How much does Canada withhold on dividends and interest paid to India?

Dividends from Canadian companies to an individual in India are withheld at 25%: the treaty's lower rate of 15% applies only to a company controlling at least 10% of the voting power (treaty, Article 10(2)). That equals the statutory rate of 25%, so filing a treaty form does not lower it.

Ordinary interest from a Canadian bank or GIC paid at arm's length is generally not subject to Part XIII tax at all (Income Tax Act s. 212(1)(b)). Interest that is taxable, such as interest from a related person (a loan to your own company or a family member), is capped by the treaty at 15% (Article 11(2)).

Tell your bank or broker you have moved; how to update accounts and give Form NR301 is in Canadian bank and brokerage accounts after leaving.

RRSP after moving back to India: keep it or cash it out?

An RRSP is not deemed sold when you leave, so you can keep it growing tax-sheltered in Canada; any later withdrawal is withheld at 25% with no treaty cut. Withdrawing while still resident is taxed at your marginal rate instead, so the cheaper choice depends on your income in the year you withdraw. The comparison is in RRSP cash-out before or after leaving Canada. A TFSA is not deemed sold either; whether you can still contribute after the move is in contributing to an RRSP or TFSA after leaving Canada.

A non-resident can elect under section 217 to file a Canadian return on pension and RRSP income, filed by June 30, which may refund part of the withholding when your total income is low. Whether it helps is worked out in the section 217 return guide.

Does the Canada-India social security agreement help you keep OAS and CPP?

It can help you keep OAS. OAS normally needs 20 years of adult residence in Canada to be paid while you live outside Canada; under the Canada-India social security agreement, years in India can count toward those 20 years (Service Canada). It never raises the amount.

A CPP pension is based on your contributions, and Service Canada pays it abroad subject to non-resident tax. The agreement does not change the tax: Canada still withholds non-resident tax on both.

What do you keep filing in Canada after the move to India?

You file a final resident return for the year you leave, then only what your Canadian income requires.

Withholding on pensions, RRSP withdrawals and dividends usually settles that tax without a return. Which years need a return is in Do you file every year after leaving Canada?.

Example

These examples are illustrative; all figures are in Canadian dollars.

Software developer returning to Bengaluru

A developer leaves Canada after eight years and sells the condo before going. On the departure date the developer holds C$80,000 of ETFs bought for C$55,000. Canada treats the ETFs as sold for C$80,000, so the final return reports a C$25,000 capital gain. The treaty does not stop India from taxing the same C$25,000 of growth when the ETFs are sold later. If India does, the developer may claim the Indian tax against the departure-year Canadian tax under section 126(2.21).

The same developer's RRSP

The developer leaves a C$120,000 RRSP in Canada. Three years later the developer withdraws it all in one year. Canada withholds 25%, or C$30,000, because the treaty gives pensions, including RRSP payments, to Canada alone. If the developer has little other income that year, a section 217 return may refund part of the C$30,000.

Retiree with Canadian bank-stock dividends

A retiree in India receives C$5,000 a year of dividends from Canadian bank shares. As an individual, the retiree gets no treaty reduction, so C$1,250 (25%) is withheld each year and no Canadian return is needed for that income.

Different for you?

• You have not decided whether your ties are cut, or your spouse stays in Canada: see Canadian tax residency and get cross-border tax help.
• You left in an earlier year and did not file a departure return or Form T1161, or the CRA has written to you: see Form T1161 when leaving Canada and get cross-border tax help.
• You own a Canadian corporation: see close or keep your corporation when leaving Canada and corporation residency after the owner moves abroad, then book cross-border tax help.
• You hold large non-registered investments or private company shares: the departure gain and the risk of India taxing it again need planning on both sides; start with Leaving Canada and book cross-border tax help.
• You keep your Canadian home and rent it out: see non-resident landlords.
• You will sell your Canadian home after you leave: see selling your home after leaving Canada.
• You keep working for your Canadian employer from India: see working for a Canadian employer from abroad.
• Your RRSP or pension is large: compare timing in RRSP cash-out before or after leaving Canada and the section 217 return, then get cross-border tax help.
• You may come back to Canada later: see returning to Canada after years abroad.