Moving from Canada to Spain: Taxes and the Canada–Spain Treaty

Moving to Spain from Canada: what is the tax rule?

You usually stop being a Canadian tax resident on the latest of the day you leave Canada, the day your spouse or common-law partner and dependants leave, and the day you become a resident of Spain (CRA). On that day Canada treats you as selling most of your property, and your final return reports any gain. After that, Canada taxes only Canadian-source income, and the Canada–Spain treaty, as amended by its protocol caps what Canada can take.

A move is not simple when you keep a home in Canada, when both countries could call you resident, when you own a private company or rental property, or when you will draw a RRIF and choose between periodic payments and lump sums. Gather your departure date, proof of Spanish residence, a list of what you own with values on the departure date, and every Canadian income slip you expect after the move.

Spanish tax law (when Spain treats you as resident, its rates, returns and foreign-asset reporting) is outside this page.

When do I stop being a Canadian tax resident, and what if Canada and Spain both claim me?

Canada's residency test looks at your ties: a home, a spouse or dependants, and other links you keep in Canada. The tests are in Canadian tax residency; to ask the CRA for its view, see Form NR73.

If both countries treat you as resident under their own law, Article IV(2) of the treaty breaks the tie in this order:

1. Permanent home: you are resident where you have a permanent home available to you.
2. Centre of vital interests: if you have a home in both, where your personal and economic relations are closest.
3. Habitual abode: if that cannot be decided, or you have a home in neither, where you habitually live.
4. Nationality: if you habitually live in both or neither, the country you are a national of.
5. Mutual agreement: if you are a national of both or neither, the two tax authorities decide.

When the treaty makes you a resident of Spain, subsection 250(5) of the Income Tax Act deems you not resident in Canada. A Canadian home kept furnished and available to you can count as a permanent home in Canada under the first test.

What do I owe Canada in the year I leave for Spain?

Your final Canadian return covers income up to the departure date and a deemed sale of most property at fair market value, often called departure tax (CRA). Canadian real estate, RRSPs, RRIFs, TFSAs and pension plans are not deemed sold. If you were resident in Canada for no more than 60 months in the preceding 120 months before leaving, property you owned when you became resident, or inherited since, is not deemed sold either. If everything you owned was worth more than $25,000, you file Form T1161. You may defer paying the departure tax by electing on Form T1244 by April 30 of the year after departure, with security if the federal tax deferred is more than $16,500. The forms and calculation are in Leaving Canada.

You can keep a TFSA: Canada does not tax its investment income or withdrawals, but you cannot contribute while non-resident and your room stops growing (CRA). Whether Spain taxes it is a Spanish question; see Contributing to an RRSP or TFSA after leaving Canada.

Can Canada still tax my gains after I live in Spain?

Yes, on some property. Under Article XIII of the treaty:

The former-resident rule. Article XIII(5) keeps Canada's right to tax a gain under its own law if you are a Canadian national, or lived in Canada for fifteen years or more, and you were resident in Canada at any time in the five years before the sale. Canadian law taxes a non-resident's gain only on taxable Canadian property, so the rule matters only for such property, for example shares of a private company that drew most of its value from Canadian real estate in the past but not at the sale (CRA T4058).

The trap: the treaty's Spanish credit under Article XXIII does not apply to Canadian tax charged only under Article XIII(5) (protocol). A sale in those five years can be taxed by both countries with no treaty credit; any relief would have to come from Spain's own law.

For selling your former home, see Selling your home after leaving Canada.

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

Canada withholds no more than 15% of a dividend paid to a resident of Spain who owns it for their own benefit. The rate is 5% only for a company that holds directly at least 10% of the paying company's capital, so an individual pays the higher rate. These rates come from the protocol, which replaced the original treaty's figures.

Interest paid by an arm's-length payer, such as ordinary bank or bond interest, is generally exempt from Canadian withholding under Canadian law (CRA T4058), and the protocol also exempts it. Interest from a payer not at arm's length with you, such as your own company, is capped at 10%. Interest tied to the use of or production from property, or worked out from revenue, profit, cash flow, commodity prices or dividends, is outside the exemption. Tell each bank, broker and payer that you now live in Spain so they apply the treaty rate; how is in Canadian bank and brokerage accounts after leaving. Rates across all treaties are in Non-resident tax rates in Canada.

What does Canada take from my RRIF, workplace pension and annuity in Spain?

For periodic pension payments, Article XVIII(2) caps Canada's tax at the lesser of 15% of the gross payment and the rate you would pay on that year's periodic pension payments if you still lived in Canada. Lump sums are outside the cap and face 25% withholding (CRA T4058).

What counts as periodic is set by section 5 of the Income Tax Conventions Interpretation Act:

Annuities have their own cap under Article XVIII(3): no more than 15% of the taxable part, except lump sums on surrender or sale and income-averaging annuities.

The RRIF limit is the decision that moves money: payments within it qualify for the treaty cap, and the excess faces the general rate unless a section 217 return lowers it. To claim the lower resident-equivalent rate, or to get withholding reduced, see Form NR5 and the section 217 return. For timing, see RRSP cash-out before or after leaving and converting an RRSP to a RRIF as a non-resident.

What about CPP and OAS paid to me in Spain?

The Government of Canada lists Canada's tax on OAS and on CPP or QPP pensions paid to residents of Spain at 15%; CPP or QPP death benefits stay at 25% (public pensions page). A section 217 return may get some of that back.

Article XVIII(4)(a) is written from Spain's side: Spain does not tax Canadian social security pensions so long as Canada does not tax them. Because Canada does tax them, Spain may too, and its credit under Article XXIII then applies. How Spain applies this is a Spanish question.

Because Canada's tax on pensions for residents of Spain is below 25%, the yearly OAS Return of Income is usually not required (OAS recovery tax); details are in the non-resident return guide.

I keep my Canadian home and rent it out: what does Canada tax?

Canada keeps the right to tax rent from Canadian real estate (Article VI). By default the tenant or agent withholds 25% of the gross rent; with a section 216 election you are taxed on net rent and can get the excess back (CRA T4058). The steps are in Non-resident landlords. A home kept available to you can also weigh in the residence tie-breaker.

I work remotely for Canadian employers or clients from Spain: which country taxes the pay?

Once you are a resident of Spain, Spain taxes pay for work you do while in Spain (Article XV(1)). Canada can tax pay for days you work in Canada, even on a short visit, when a Canadian employer pays you: the treaty's short-stay exemption covers only employers that are not Canadian residents (Article XV(2), as replaced by the protocol). Payroll withholding and the employer's side are in Working for a Canadian employer from abroad.

If you are self-employed and invoice Canadian clients, the protocol deleted the treaty's article on independent services. Your fees are business profits under Article VII: Canada can tax them only if they come from a permanent establishment in Canada, a fixed place of business there such as an office. GST/HST and client withholding are in Canadian clients after moving abroad.

How is double tax avoided between Canada and Spain?

Each country credits the other's tax on income the treaty lets the other tax (Article XXIII, replaced by the protocol). For a resident of Spain, Spain allows a deduction for Canadian tax on Canadian pensions, dividends, interest, rent and real-estate gains, limited to the Spanish tax on that income. Canada does the same for Spanish tax when Canada taxes you as a resident, which matters in the year you move.

One gap to watch: the treaty's Spanish credit does not cover Canadian tax charged only under the former-resident rule in Article XIII(5). Whether Spain's own law gives any relief is a Spanish question.

What do I file in Canada each year after moving to Spain?

Withholding is generally your final Canadian tax on pensions, dividends and interest (CRA T4058). A return is needed only in these cases:

Example

These examples use round, illustrative figures in Canadian dollars.

A couple retires from Calgary to Valencia

Each spouse takes C$25,000 a year in monthly payments from a RRIF worth C$300,000 at the start of the year. That is under 10% of the start-of-year value, so all of it is periodic. Canada withholds no more than 15% on each, at most C$3,750. If tax at Canadian resident rates on C$25,000 would be lower, a section 217 return may bring Canada's tax down to that level. Spain may also tax the payments; the treaty requires Spain to allow a deduction for the Canadian tax, up to Spain's tax on that income.

A retiree cashes out an RRSP after moving

A former Ottawa resident withdraws C$80,000 from an RRSP in one payment. It is not periodic, so the treaty cap does not apply and Canada withholds 25%, C$20,000. A section 217 return may reduce it, depending on the rest of the year's income.

A former Vancouver resident sells a condo

A Canadian citizen moves to Madrid and keeps a condo she bought as a rental and never lived in. Two years later the condo sells at a C$200,000 gain. Canada taxes the gain under Article XIII(1) because the condo is Canadian real estate; the former-resident rule in Article XIII(5) is not needed. The buyer holds back part of the price until the CRA issues a clearance certificate. Because Canada's tax rests on Article XIII(1), the treaty's Spanish credit covers it, up to Spain's tax on that gain. If the condo had been her home, the change to renting is a deemed sale under section 45 of the Income Tax Act and the principal residence exemption changes the taxable gain; see Selling your home after leaving Canada.

Different for you?

• You will draw a RRIF, CPP and OAS from Spain: the periodic limit, section 217 and OAS recovery tax interact; plan them together with cross-border tax help and see Retiring abroad from Canada.
• You keep and rent out your Canadian home: see Non-resident landlords; a home kept available can also affect your residency, so get cross-border tax help.
• Both countries could call you resident: work through the tie-breaker with Canadian tax residency and cross-border tax help.
• You own a Canadian corporation or real estate held through one: running it from Spain can change where the company is resident, and how you take money out changes Canada's tax. See Corporation residency after the owner moves abroad, Paying yourself from your corporation after moving abroad and Close or keep your corporation, and get cross-border tax help before you leave or sell.
• You already moved and never filed a departure return, kept filing as a resident, or the CRA is asking about your residency: see Filed resident returns after leaving Canada and CRA residency questionnaire, and get cross-border tax help.
• You are moving to Portugal instead: see Moving from Canada to Portugal.