Moving from Canada to Taiwan: Canadian Tax and the Tax Treaty

Canada-Taiwan tax treaty: is there one, and what does it change?

Yes. Canada and Taiwan have a double tax arrangement, signed between the Canadian Trade Office in Taipei and the Taipei Economic and Cultural Office in Canada, and Finance Canada lists it with the treaties in force. It is called an arrangement, not a treaty, but it works like one. It has effect in Canada for withholding on amounts paid on or after January 1, 2017, and for other taxes from taxation years starting on or after that date (Finance Canada notice).

Once you are no longer a Canadian resident, Canada taxes only your Canadian income, mostly by withholding at source. The arrangement caps that withholding:

A case stops being simple when you keep a home in Canada, your spouse stays behind, you hold a large RRSP or RRIF, or you own a Canadian corporation or rental. Gather your move date, your spouse's and dependants' move dates, whether your Canadian home is sold, rented or kept empty, RRSP and RRIF values, a list of your accounts and what each held on the day you left, and proof you became resident in Taiwan (household registration, a lease or home, your Taiwan tax filing).

When does Canada stop taxing me after moving back to Taiwan?

You usually become a non-resident on the day you cut your residential ties: generally the latest of the day you leave, the day your spouse or common-law partner and dependants leave, and the day you become resident in Taiwan (Folio S5-F1-C1, ¶1.22). If you lived in Taiwan before coming to Canada and are going back to re-establish residence there, the CRA generally treats you as a non-resident from the day you leave, even if your spouse or dependants stay a short while to sell the home or finish the school year (¶1.23). If they stay on with no end date, your spouse usually remains a significant tie (¶1.13), and you may still be a Canadian resident taxed on your Taiwan salary unless the tie-breaker below sends you to Taiwan.

The ties that almost always count are a home in Canada, a spouse or common-law partner, and dependants (¶1.11). Whether your ties are cut is covered in Canadian tax residency.

How does the Canada-Taiwan arrangement decide residence if both treat me as resident?

If Canadian law still treats you as resident and Taiwan also does, section 4(3) of the arrangement decides, in this order:

1. Where you have a permanent home available.
2. If you have a home in both, where your personal and economic relations are closer (centre of vital interests).
3. If that cannot be decided, or you have a home in neither, where you have a habitual abode.
4. If you have a habitual abode in both or neither, the two tax offices settle it by mutual agreement.

There is no citizenship step. Many tax treaties look at nationality before the tax authorities get involved; this arrangement does not, so if your vital interests cannot be placed and you have a habitual abode in both places or neither, the two tax offices decide.

If the tie-breaker sends you to Taiwan, the Income Tax Act deems you not resident in Canada (s. 250(5)), and the emigrant rules apply from that time (CRA). The CRA may assume you are not a treaty resident of the other place unless you show you are liable to tax there (Folio S5-F1-C1, ¶1.43), so keep your Taiwan tax filings and household records. To ask the CRA for its view, see asking the CRA to decide your residency.

What departure tax applies, and can Taiwan tax gains I built up in Canada?

On the day you leave, Canada treats you as having sold most of your property at fair market value, and the gain goes on your final return (CRA). Canadian real property, RRSPs, RRIFs, TFSAs and pensions are excluded. You list your property on Form T1161 if it was worth more than $25,000 in total, and you can defer payment with Form T1244 if you elect by April 30 of the year after departure. Property you owned when you last came to Canada, or inherited after you arrived, is excluded if you lived in Canada no more than 60 months in the preceding 120 months. The calculation and forms are in leaving Canada.

Section 13(6) of the arrangement stops Taiwan taxing the same growth twice. When Canada taxes you on a deemed sale at departure and you then become a resident of Taiwan, Taiwan may tax only the gain that did not build up while you lived in Canada. The protocol measures the Canadian part using the lesser of the value on the day you left and the price you later get. The exception is property Taiwan could have taxed anyway, such as real estate in Taiwan.

After you leave, Canada keeps the right to tax gains on Canadian real property, and on shares or interests that get more than 50% of their value from Canadian real property (sections 13(1) and 13(4)). The arrangement has no rule letting Canada tax other gains of a former resident; those are taxable only where you live (section 13(5)). Selling your Canadian home later is covered in selling your home after leaving Canada.

How much does Canada withhold on CPP, OAS, pensions, dividends and interest in Taiwan?

For a resident of Taiwan, Service Canada lists non-resident tax of 15% on OAS and on CPP/QPP pensions, and 25% on CPP/QPP death benefits (Service Canada). Without the arrangement, the rate would be 25%.

Section 18(2) caps Canada's tax on periodic pension payments at the lesser of 15% of the gross payment and the tax you would owe on your year's periodic pensions as a Canadian resident. Unlike some treaties, there is no yearly tax-free amount. If resident-level tax would be lower than the withholding, a section 217 return may recover the difference; see the non-resident return for pension and RRSP income.

Dividends from Canadian companies paid to an individual in Taiwan are taxed at up to 15%, down from the statutory 25% (Income Tax Act s. 212). The arrangement caps tax on interest at 10%, but Canadian law generally does not tax arm's-length interest paid to a non-resident unless it is participating debt interest (s. 212(1)(b)), so the interest cap matters mostly for interest from a relative or your own company. To get the lower rates, your bank or broker needs your non-resident status; see Canadian bank and brokerage accounts after leaving.

The arrangement does not stop Taiwan taxing this income under its own law. If Taiwan does tax it, section 22(2) has Taiwan credit the Canadian tax, up to the Taiwan tax on that income. How Taiwan taxes income from abroad is outside this page.

Which RRSP and RRIF payments get the lower pension rate?

Only periodic pension payments get the cap. Under the Income Tax Conventions Interpretation Act s. 5:

This is the main trap: cashing out an RRSP in one go gets no help from the arrangement. Whether to withdraw before or after leaving is in RRSP cash-out before or after leaving Canada.

Can I get OAS in Taiwan without a social security agreement?

Yes, if you were a Canadian citizen or legal resident on the day before you left and you lived in Canada at least 20 years after age 18 (Service Canada). Taiwan is not on Service Canada's list of places with a social security agreement (Service Canada), so years in Taiwan cannot count toward that 20-year rule. With fewer than 20 Canadian years, OAS may stop once you are outside Canada for more than 6 months (Service Canada). Contact Service Canada before you leave to avoid overpayments you would have to repay. CPP is not affected by the 20-year rule. Applying from abroad is in retiring abroad from Canada.

Taiwan is on the CRA's list of tax treaty places whose residents do not file the OAS Return of Income, as long as they stay in a listed place (T4155). That return is how the OAS recovery tax reaches non-residents, so while you live in Taiwan you may be exempt from it (Service Canada).

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

For the year you leave, you file a final return with your departure date on page 1 and Form T1161 if required (CRA). After that, it depends on your Canadian income:

The full test is in do you file every year after leaving Canada.

Example

All figures are illustrative and in Canadian dollars.

An engineer moves back to Taipei with her spouse

They sell their Markham townhouse before leaving, so it is not on the departure list. Her C$150,000 of ETFs in a non-registered account carry a C$40,000 gain; that gain goes on her final Canadian return as a deemed sale. Two years later she sells the ETFs for C$170,000. Under section 13(6), Taiwan may tax only the C$20,000 of growth after the move, if Taiwan taxes the gain at all. Canada does not tax that C$20,000: the ETFs are not Canadian real property, so section 13(5) leaves the gain to Taiwan.

A retiree draws a RRIF from Taipei

He takes C$24,000 a year, the RRIF minimum. That is a periodic pension payment, so Canada withholds at most 15%, C$3,600. If his tax as a Canadian resident on his year's pensions would be lower, he may file a section 217 return to recover the difference. If he instead cashed a C$200,000 RRSP in one withdrawal, it would be a lump sum with no cap: Canada withholds 25%, C$50,000.

A retiree with 12 years in Canada

She receives CPP and OAS and moves back to Taiwan. With no social security agreement and fewer than 20 Canadian years, her OAS may stop once she is away more than six months. Her CPP continues, with 15% withheld.

Different for you?

• You keep a home, or your spouse or dependants stay in Canada, so your residence turns on ties or the tie-breaker: Canadian tax residency, asking the CRA to decide your residency, or a cross-border tax review.
• You own shares, crypto or a private company with large gains on the departure date: leaving Canada, departure tax on private company shares, and the cross-border tax service.
• You own a Canadian corporation: close or keep your corporation when leaving Canada.
• You are leaving Quebec: leaving Quebec.
• You will rent out your Canadian home: non-resident landlords.
• You have a large RRSP and are deciding when to draw it: RRSP cash-out before or after leaving Canada.
• You want to keep contributing to your TFSA or RRSP: contributing to an RRSP or TFSA after leaving Canada.
• You receive the Canada child benefit or other benefits: benefits after leaving Canada.
• Too much was withheld from your pension or RRSP: the non-resident return for pension and RRSP income.
• You left in a past year and never filed a departure return: cross-border tax help.
• You may come back to Canada later: returning to Canada after years abroad.
• You are moving somewhere else: moving from Canada to Hong Kong, moving back to China.