Section 217 and OAS Returns for Non-Resident Retirees

What is a section 217 return, and which payments qualify?

A section 217 return is an optional Canadian income tax return for a non-resident or part-year resident with eligible Canadian-source income. It may replace final non-resident withholding with tax calculated on a return if the election benefits you. An approved Form NR5 for a section 217 reduction creates an annual filing obligation. CRA: who can elect; CRA: should you elect.

The CRA eligibility list excludes Old Age Security Act supplements and certain authorized transfers. If you left Canada during the year, the election covers eligible payments received after departure; your resident-period world income still belongs on your part-year return. A treaty tie-breaker can make you a non-resident for Canadian tax even if domestic residence rules say otherwise under Income Tax Act subsection 250(5); resolve this tax residency question first.

Will a section 217 return refund the tax withheld from my RRIF or pension?

Compare line 43500 tax on a completed section 217 return with the Canadian tax legally payable without the election. The CRA applies a timely election only if it helps; the amount on an NR4 is a payment credit, not the amount to use for the legal comparison. CRA: should you elect.

The required non-resident tax can differ from withholding when a payer used the wrong rate or Form NR5 reduced deductions. A beneficial election can still leave a balance if too little was withheld. If the election does not help but the payer withheld too much, claim an overwithholding refund on Form NR7-R within 2 years after the calendar year the tax was paid to CRA. A payer that fails to withhold owes the missing Part XIII tax under subsection 215(6) and may recover it from the recipient. Section 227 adds interest, shared with the recipient, and a 10% penalty, rising to 20% for a later knowing or grossly negligent failure in the same year; CRA may assess a resident payer at any time. Corporate directors can also owe the tax, interest and penalties under section 227.1, subject to its collection and due-diligence rules; recovery proceedings must start within two years after they leave office. A part-year elector pays provincial or territorial tax instead of the non-resident surtax. CRA: Schedule C; CRA: should you elect; Income Tax Act: withholding; penalties and interest; directors. For the withholding rules themselves, see Leaving Canada.

Do I put income from my new country on the section 217 return?

A full-year non-resident generally reports eligible Canadian income on the section 217 return and foreign income on Schedule A, Statement of World Income. Foreign income on Schedule A affects the tax calculation and available credits; reporting it there alone does not make that income taxable in Canada. CRA: Schedule A.

Schedule A also includes Canadian income omitted from the return because withholding is final, such as dividends or rent. The return uses the greater of its taxable income and adjusted net world income to calculate federal tax; when world income is used, Schedule C removes the portion attributable to income outside the section 217 tax base. A part-year resident reports world income earned while resident in Canada, then eligible section 217 income received while non-resident. CRA: calculating tax; CRA: how to complete the return.

Which NR4 boxes, schedules and credits matter?

For eligible section 217 payments, use NR4 box 16 or 26 for gross income and box 17 or 27 for tax withheld, normally in Canadian dollars. Check the income and currency codes; do not claim withholding on dividends or rent omitted from this return. A full-year non-resident uses the non-resident return and applicable Schedules C, A and B. If you left Canada during the year, use the tax package for your province or territory on the departure date and complete the schedules that apply. If you left Québec, also file a Québec return for your resident period; Québec may require a return for Québec employment, business or taxable-property income after departure. CRA: NR4 boxes; CRA: completing the return; Revenu Québec: leaving Québec.

For a full-year non-resident, the schedules and return lines serve these roles:

For a full-year non-resident, Schedule B allows the full applicable federal non-refundable credits when net income on the return is at least 90% of net world income. Otherwise its formula limits the credits; a low Canadian pension alone does not guarantee a refund. Claim only deductions and credits that apply. Write “SECTION 217” at the top of page 1, sign the return, attach the applicable schedules and slips, and keep receipts. CRA: Schedule B; CRA: return form; CRA: completing the return.

When must I file and pay, and what if I missed the deadline?

The usual section 217 filing deadline is June 30 after the tax year; a balance is due April 30. The CRA says it cannot accept an election filed after June 30, so a late refund claim under section 217 can fail even if the calculation looks favorable. CRA: due dates.

The CRA moves a weekend or recognized-holiday deadline to the next business day. If the election is late, correctly withheld non-resident tax generally remains final; the CRA can assess any shortfall. Limited-partner income or mixed sources can affect the filing date; check the CRA's return instructions.

Can Form NR5 reduce tax on future payments?

Form NR5 asks the CRA to authorize reduced withholding on future eligible payments when a section 217 return is expected to produce less tax. Sign it yourself, or have an authorized representative sign with a power of attorney attached. Send it by October 1 or before the first payment is due; the CRA decides whether to approve it. A section 217 approval covers five tax years and obliges you to file a return for every approved year by June 30 after that year. If NR5 requests only a treaty exemption, no section 217 election or return is required for that approval. CRA: Form NR5; CRA: should you elect; CRA: NR5 policy.

The CRA tells the Canadian payers which reduced withholding rate to use. If estimated world income changes, send an amended NR5 within 30 days; routine pension indexation does not require one. An approval does not settle your final tax: a section 217 return can produce a balance, and cancelling NR5 does not remove the return duty for years already approved for section 217. Keep the approval and each year's income records. CRA: NR5 policy.

If I receive OAS abroad, must I file an OAS Return of Income?

A non-resident receiving Old Age Security normally files Form T1136, the OAS Return of Income, by April 30 after the tax year. A treaty-based exception may remove the filing duty; it depends on the country or region of residence and the return year. This return is separate from a section 217 election. CRA: OAS Return of Income.

The CRA's latest published exception requires residence in a listed place at year-end, OAS received in that return year, and no plan to move to an unlisted place before its stated date. Its prior-year list includes the United States but not Hong Kong; Brazil and the Philippines have separate conditions. Check the list for the year you file. CRA: treaty exceptions. Service Canada describes an exemption when the applicable non-resident tax on Canadian pensions is below 25%. CRA states treaty exceptions by residence and return year, so check its filing-year rule before deciding no return is required. Service Canada: recovery tax.

If T1136 is required, missing it can stop OAS payments from July. If recovery tax is owed, the late-filing penalty is 5% of the balance plus 1% for each full late month, up to 12 months. After a CRA demand and a late penalty in the preceding 3 tax years, the repeat rate is 10% plus 2% per full late month, up to 20 months. Moving countries during the year or receiving OAS in a departure year calls for the CRA's special calculation. CRA: OAS Return of Income; Income Tax Act: penalties.

How does the OAS recovery tax use net world income?

The OAS Return of Income tests Canadian and foreign net income against the OAS recovery threshold. For this tax year, the published threshold is $95,323; the recovery calculation starts with 15% of income above it, subject to the OAS benefit cap and treaty rules. Service Canada: recovery tax; CRA: OAS Return of Income.

Net world income includes employment, business, pensions, social security, gains, rent, interest and dividends from inside and outside Canada, less allowable deductions. Do not subtract tax already withheld. Use the T1136 chart for your filing year: it caps preliminary recovery tax at OAS received less recovered overpayments, then applies the form's non-resident multiplier. Non-resident tax on OAS plus OAS recovery tax cannot exceed OAS pension income, including supplements, received for the year. T1136 calculates recovery tax only, not the income tax recalculated under section 217. CRA: OAS Return of Income.

Example

Illustrative amounts in Canadian dollars. A retiree abroad receives C$30,000 from a Canadian RRIF. Assume the applicable treaty makes the required non-resident tax C$4,500, and the NR4 shows C$4,500 withheld. After entering all required world income on Schedule A and allowable credits on Schedule B, the completed section 217 return shows C$3,000 of tax on line 43500. If filed on time, the election is beneficial and the C$4,500 credit on line 43700 produces a C$1,500 refund. If only C$2,000 had actually been withheld, the same election would instead leave C$1,000 to pay. OAS received in the same year would require a separate T1136 check.

Different for you?

• You recently left Canada: the departure date changes which income goes on the resident-period return. See Leaving Canada.
• Your Canadian residence status is uncertain: resolve it before choosing a non-resident return. See Canadian tax residency.
• You now live in the United States: CPP and OAS also affect your US filing. See Moving from Canada to the US.
• You also receive Canadian rent: a separate section 216 election may apply. See Non-resident landlords.
• You have approved NR5 withholding, missed a filing date, changed treaty residence or owe OAS recovery tax: gather NR4 slips, pension statements, residence dates, the NR5 approval, world-income records and both countries' returns for individual tax help.