Retire in the Philippines from Canada: Tax Treaty and Withholding

Does Canada have a tax treaty with the Philippines?

Yes. Canada and the Philippines signed a tax treaty in 1976. Canada taxes you on world income until you stop being a Canadian resident. After that, Canada taxes only your Canadian-source income, mainly through withholding. The Canada-Philippines tax treaty sets these limits:

Without a reduction, Canada withholds 25% (CRA).

A move is not simple when a spouse, dependants or a home stay in Canada (you may still be resident and taxed on world income), when you hold an RRSP or RRIF (timing changes the tax), when Canadian pensions pass the treaty threshold (you may be over-withheld), or when you own a corporation or rental property. Gather your move date, where each family member lives, your CPP, OAS and private pension statements, and the value of each investment and registered plan on the day you leave.

When does Canada stop taxing me after moving to the Philippines?

You usually become a non-resident on the date you sever your residential ties. The CRA says that date is usually the latest of the day you leave, the day your spouse or dependants leave, and the day you become resident in the Philippines (Folio S5-F1-C1, ¶1.22).

A home, a spouse or common-law partner, or dependants left in Canada are almost always significant ties (¶1.11). Keeping any of them can keep you a Canadian resident even while you live in Manila or Cebu. See Canadian tax residency for how ties are weighed, and asking the CRA to decide your residency for an NR73 opinion.

Enter your departure date on page 1 of your final Canadian return (CRA).

How does the Canada-Philippines treaty tie-breaker work?

If both countries treat you as a resident, Article IV(2) of the treaty decides, in this order:

1. Where you have a permanent home available to you.
2. If you have one in both, where your personal and economic relations are closer.
3. If that cannot be decided, where you habitually live.
4. Then your nationality.
5. If none of these settles it, the two tax authorities decide by mutual agreement.

If the treaty makes you a Philippine resident, Canada deems you not resident under Income Tax Act s. 250(5), and you follow the same rules as an emigrant. The CRA applies this only when the tie-breaker sends you to the other country (Folio ¶1.37), and you must show you are liable to tax in the Philippines (¶1.43). A dual Canadian-Filipino citizen gets no answer from step 4.

Do I pay departure tax when I move to the Philippines?

Only if you own property the departure rules cover, such as non-registered shares and funds. On leaving, you are treated as selling most property, such as shares and funds, at fair market value. Canadian real estate, RRSPs, RRIFs, TFSAs and pension plans are excluded (CRA). If everything you owned was worth more than $25,000, you also file Form T1161. See leaving Canada for the final return, T1161 and the T1244 payment deferral.

Can Canada still tax my gains for six years after I leave?

Yes, the treaty allows it. Article XIII(4) normally lets only the Philippines tax gains on property other than the kinds covered earlier in that article. Article XIII(5) keeps Canada's right to tax a gain if you lived in Canada at any time in the six years before the sale.

Canada uses that right only where its own law taxes the gain, such as on taxable Canadian property. Whether a given sale is taxed in Canada depends on the asset, so check before selling shares of a private company or other property after the move. Real estate in Canada is different: Canada can tax that gain whenever you sell (Article XIII(1)); see non-resident landlords.

Why does the treaty leave Canadian pensions to Canada?

Article XVIII(1) says pensions and annuities arising in one country and paid to a resident of the other are taxable only in the country where they arise. A pension from Canada, paid to you in the Philippines, is taxable only in Canada under the treaty, so the treaty does not let the Philippines tax it too.

Canada then limits its own tax. Service Canada lists 25% non-resident tax on OAS, CPP or QPP pensions and CPP or QPP death benefits paid to the Philippines (Service Canada). Service Canada also states that you are exempt if the total of your pensions from Canada, other than CPP or QPP death benefits, does not exceed $5,000 or its equivalent in pesos.

How do I get the treaty pension exemption with an NR5?

File Form NR5 to claim the exemption; Service Canada says you must. Without an approved NR5, the full rate is withheld from each payment. Tax withheld before your NR5 takes effect is not lost: apply for a refund with Form NR7-R within 2 years after the end of the year it was withheld (Income Tax Act s. 227(6)). An approved NR5 applies from the January after approval, and you must still file a Canadian return each year it covers. See lower withholding on Canadian pensions abroad for how to apply, the deadline and how long an approval lasts.

Count every Canadian pension in the total, not only CPP and OAS. The treaty does not define "pension", so section 5 of the Income Tax Conventions Interpretation Act does: payments from a registered pension plan, RRSP or RRIF are pensions. Regular RRIF and workplace pension payments therefore count toward the $5,000 total.

What happens if my Canadian pensions are over the treaty threshold?

Above the threshold, the exemption is gone and Canada withholds 25% unless you arrange a reduction. The treaty still caps Canada's tax on periodic pension payments at 30% of the amount by which the year's total exceeds $5,000.

That cap is lower than full withholding until total periodic pensions reach about six times the threshold. Below that point, Canada's withholding can exceed what the treaty lets it keep. How the difference comes back depends on the payer and your other income: the treaty rate applied at source, a refund application for Part XIII tax (Form NR7-R), or a section 217 return (see non-resident return for pension and RRSP income). Confirm the route with the CRA or the payer before relying on it.

Does the treaty limit tax on an RRSP withdrawal?

An RRSP lump sum is not a periodic pension payment under section 5 of the Income Tax Conventions Interpretation Act, so the 30% cap does not apply to it. A cash-out after you leave is generally withheld at 25%. Large RRIF withdrawals also lose the cap: anything in a year above the greater of twice your minimum withdrawal and 10% of the fund's value at the start of the year. See cashing out an RRSP before or after leaving Canada.

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

Canadian dividends are capped at 15% (Article X(1)). Interest is capped at 15% (Article XI(2)), provided the interest is taxable in the Philippines. Under Income Tax Act s. 212(1)(b), Canada does not withhold on interest paid at arm's length unless it is participating debt interest, so most bank and bond interest is paid without Part XIII tax. Interest from a related person, such as your own corporation, is still withheld, at up to the treaty rate.

To get the treaty rate, your bank or broker needs to know you live in the Philippines. See Canadian bank and brokerage accounts after leaving for Form NR301.

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

It can help you qualify, but it does not raise the amount. Canada and the Philippines have a social security agreement (Service Canada). Normally you need 20 years of residence in Canada to receive OAS while living outside Canada. Under an agreement, time in the other country can count toward that rule. Service Canada says an agreement does not increase your payment amount.

The Philippines is not on the CRA's list of treaty countries whose residents skip the OAS Return of Income (CRA guide T4155). You need not file it only if your total Canadian pensions for the year were $5,000 or less; otherwise file it each year by April 30, or OAS payments are suspended from July. For the wider retirement plan, see retiring abroad from Canada.

Example

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

A widow with a small CPP survivor pension

A 70-year-old widow moves to Cebu. Her only Canadian pension is a CPP survivor pension of C$4,800 a year. The total is under C$5,000, so with an approved NR5, Service Canada withholds nothing. Without the NR5, it withholds 25%, or C$1,200 a year. With it, she must still file a Canadian return each year it covers.

A retiree with CPP and OAS over the threshold

A retiree in the Philippines receives CPP of C$9,000 and OAS of C$8,500, a total of C$17,500. Full withholding at 25% is C$4,375. The treaty cap is 30% of the C$12,500 above C$5,000, or C$3,750. The C$625 difference is tax the treaty may not let Canada keep; how much comes back depends on the route and the retiree's other income.

A couple living apart

One spouse moves to Manila; the other keeps working in Calgary and stays in the family home. The spouse and home in Canada are significant ties, so the spouse in Manila may remain a Canadian resident. Canada would then tax world income. If the Philippines also treats the mover as resident, the treaty tie-breaker starts with where the mover has a permanent home; a home in both countries moves the test to closer personal and economic ties.

Different for you?

• A spouse, dependants or your home stay in Canada: see family stays in Canada while you work abroad and get cross-border tax help to test the tie-breaker.
• Your Canadian pensions are over $5,000: compare an NR5 with a section 217 return, with cross-border tax help.
• You hold an RRSP or RRIF: see RRSP cash-out before or after leaving, and get cross-border tax help to time withdrawals against the treaty limits.
• You own a Canadian corporation: see paying yourself from your corporation after moving abroad.
• You already left and missed the departure return or T1161: see late departure forms and penalties and get cross-border tax help.
• You own shares or funds worth more than the T1161 threshold: see leaving Canada and get cross-border tax help for the departure return.
• You keep and rent out a Canadian home: see non-resident landlords, and get cross-border tax help for NR6 and section 216 filings.
• You are moving somewhere else: see the other country pages, such as moving from Canada to Thailand.