Moving from Canada to Thailand: Canada-Thailand Tax Treaty

When does Canada stop taxing a Canadian who moves to Thailand?

Canada taxes your world income until you become a non-resident: the day you leave and cut your significant residential ties, or the day the Canada-Thailand treaty tie-breaker makes you resident in Thailand. After that, Canada taxes only Canadian-source income, mostly by withholding.

A move is not simple when you keep or rent out a home in Canada, a spouse or dependants stay behind, you hold a large RRSP or RRIF, you own private company shares, or you left in an earlier year and never filed a departure return. Each can keep you resident, raise departure tax, add Canadian filings or change what Canada withholds, and Thailand may tax some of the same income.

Gather: your move date, Thai visa and any proof you are a Thai tax resident, what happens to your Canadian home (sold, kept or rented), CPP and OAS statements, rental or company records, and the value of each RRSP, RRIF, TFSA, investment account and property on the day you leave.

How do Canadian residency and the Canada-Thailand tie-breaker work?

You become an emigrant when you move abroad to live and cut your main residential ties (CRA: Leaving Canada). The CRA treats a home, a spouse or common-law partner, and dependants in Canada as the ties that matter most; keep them and you usually stay a factual resident taxed on world income (Folio S5-F1-C1). Whether your ties are cut is covered in Canadian tax residency, and asking the CRA for a view in asking the CRA to decide your residency.

If both countries treat you as resident, Article 4(2) of the Canada-Thailand Convention breaks the tie in this order:

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

If the tie-breaker sends you to Thailand, Income Tax Act section 250(5) deems you a non-resident of Canada for all purposes from that time. The tie-breaker only applies if Thailand treats you as its resident under its own law, and the CRA assumes you are not a treaty resident abroad unless you show it (Folio S5-F1-C1, ¶1.37-1.43). Keep proof that you are a Thai tax resident.

What departure tax applies, and can Canada tax my gains for six years?

On the day you become a non-resident, Canada treats most property you own as sold at fair market value, and the gain goes on your final return. Canadian real property, RRSPs, RRIFs, TFSAs and pension plans are left out (CRA: Dispositions of property). Enter your departure date on page 1 of the return, and file Form T1161 by your filing due date if the property you owned, not counting cash, registered plans and personal-use items under $10,000, was worth more than $25,000. The final return, Form T1244 deferral and the short-resident exception are covered in leaving Canada. If you lived in Québec before you left, you also file a Québec return, with Québec's own departure forms (CRA: Leaving Canada); that page covers them too.

Article 13(6) of the treaty lets Canada still tax a gain you realize as a Thai resident if you were a Canadian resident at any time in the six years before the sale. Without it, Article 13(5) would give gains on most property only to Thailand. The six-year rule only matters where Canadian law itself still taxes the gain, so check which of your assets Canada can reach before selling in the first six years.

Why does the treaty leave CPP, OAS and RRSP payments at the full Canadian rate?

The Canada-Thailand treaty sets no lower rate for pension-type income, so Canada withholds the default 25% on CPP, OAS, RRSP and RRIF payments (CRA: Rates for Part XIII tax). Service Canada's country table gives Thailand 25% on OAS, CPP and CPP death benefits, with no exemption (Service Canada).

Under the treaty, Canadian pensions, periodic or lump sum, and Canadian income the treaty does not name (OAS, CPP, RRSP and RRIF payments) stay taxable in Canada under Canadian law, with no cap (treaty, Articles 18 and 21). This is the trap for retirees who compare notes with friends in countries whose treaties cut the rate on periodic pensions; Thailand's does not. Which article fits each payment, and whether Thailand also taxes it, can matter for a Thai return; Thai tax is outside this page.

OAS also has a recovery tax. Thailand is not on the CRA's list of countries whose residents skip the Old Age Security Return of Income, so a Thai resident receiving OAS files it by April 30 each year, or OAS is suspended in July (CRA: T4155). How the recovery is worked out is in section 217 returns and the OAS return.

Can a section 217 return or Form NR5 lower that withholding?

Yes, possibly. A section 217 return lets you pay tax on OAS, CPP, pension, RRSP and RRIF payments at the rates residents pay instead of the flat 25%, and may refund all or part of the tax withheld when your world income, including income in Thailand, is modest (CRA: T4058). Because the Thai treaty offers no lower rate, this election is the main way to reduce Canadian tax on these payments. The return is generally due by June 30 of the following year, but any balance owing is due by April 30.

Form NR5 asks the CRA to approve lower withholding up front, for up to five years unless your income changes, but you must file a section 217 return for each year it covers. Filing details are in section 217 returns for pension and RRSP income, and the NR5 trade-off in lower withholding on Canadian pensions abroad. Whether to cash out an RRSP before or after the move is in RRSP cash-out before or after leaving.

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

Canada withholds at most 15% on dividends from Canadian companies (Article 10(2)), down from 25%, and at most 15% on Canadian interest that is still taxable (Article 11(2)), down from 25% (treaty). Interest from a payer you deal with at arm's length, such as an ordinary bank account, is generally exempt from Canadian withholding altogether (CRA: T4058).

Your bank or broker applies the treaty rate only after you give it your new address and Form NR301; see Canadian bank and brokerage accounts after leaving. Renting out your Canadian home has its own rules in non-resident landlords.

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

Only if you lived in Canada for at least 20 years after age 18. Canada has no social security agreement with Thailand, so years lived there cannot be added to reach 20 (Service Canada: Social security agreements). With fewer than 20 years, OAS may stop once you are outside Canada for more than 6 months (Service Canada: Receiving your OAS pension). The Guaranteed Income Supplement stops after 6 months outside Canada however long you lived here (Service Canada: GIS after applying). Tell Service Canada before you leave to avoid overpayments you would have to repay.

The CPP retirement pension is different: Service Canada lists it as payable outside Canada with at least one valid contribution, and Canada withholds on it as above (Service Canada: CPP abroad). More on pensions abroad is in retiring abroad from Canada.

Example

All figures are in Canadian dollars and illustrative only.

Retiree in Chiang Mai with CPP and OAS

A retiree who lived in Canada for 25 years after age 18 moves to Chiang Mai and cuts all ties. CPP pays C$12,000 a year and OAS C$8,500, for C$20,500. Canada withholds 25%, or C$5,125, because the treaty sets no lower rate. With little other income anywhere in the world, a section 217 return may refund part of that. With 25 years in Canada, OAS keeps paying in Thailand, and an Old Age Security Return of Income is due each year.

Same retiree draws C$15,000 from a RRIF

Withholding on the RRIF is 25%, or C$3,750. Under this treaty it makes no difference whether the money comes out in regular payments or one lump sum. The RRIF payments can go on the same section 217 return as CPP and OAS.

Retiree with 15 years in Canada

A retiree who lived in Canada for 15 years after age 18 moves to Bangkok. With no social security agreement, the years in Thailand do not count toward 20, so OAS may stop once the retiree has been outside Canada for more than 6 months. CPP keeps paying, with 25% withheld.

Different for you?

• Thailand may also tax the same income: this page covers only the Canadian side. Planning both returns together is a two-country case; see cross-border tax help.
• You keep a home in Canada, or your spouse stays: you may still be resident, taxed on world income. See Canadian tax residency and cross-border tax help.
• Both countries claim you as resident: the tie-breaker and proof of Thai residence decide it. See cross-border tax help.
• Large RRSP or RRIF, or you want the section 217 refund: see section 217 returns and Form NR5, and cross-border tax help.
• Shares, a private company or big gains at departure: see leaving Canada and cross-border tax help.
• You left years ago and never filed a final return: see non-resident returns and catch-up and cross-border tax help.
• You get OAS and have never filed the Old Age Security Return of Income: see section 217 returns and the OAS return and cross-border tax help.
• Which Canadian forms recur each year: see filing every year after leaving.
• Which rate applies to other Canadian income: see non-resident tax rates in Canada.
• Moving somewhere else: see moving from Canada to the Philippines or moving from Canada to Mexico.