Retiring abroad from Canada: tax, CPP and OAS before and after

Retire abroad from Canada: what tax applies, in short

Retiring abroad changes two things. In the year you leave, you file a departure return: world income up to your departure date, and most investments treated as sold at market value (CRA). After that, Canada generally taxes only Canadian-source income, and your CPP, OAS, pension and RRIF payments face non-resident tax of 25% unless a treaty lowers it (Income Tax Act s. 212).

A retirement move is not simple when:

• You keep a home in Canada you can use, or return every summer: you may still be resident.
• You have a large non-registered portfolio: the deemed sale can mean a real tax bill with no cash sale behind it.
• You have two or more pensions, or plan to cash out an RRSP or commute a pension: the timing changes the rate.
• You lived in Canada fewer than 20 years after age 18: OAS may stop once you have been away more than six months.
• You already moved and never filed a departure return or told Service Canada.

Gather: your departure date and proof of it, pension and RRIF statements, the cost of every investment you own, a count of your years in Canada since 18, and your new foreign address.

Does retiring abroad end Canadian tax residency, and how is it different from wintering abroad?

Retiring abroad generally ends Canadian residency only when you cut your main ties, or when a tax treaty makes you a resident of your new country instead (s. 250(5)). A winter abroad does not: the CRA treats even an extended temporary absence as not enough to end residence when you keep ties in Canada (Folio S5-F1-C1, para 1.16).

The ties that almost always count are a home, a spouse or partner, and dependants in Canada. A home you keep available to live in is generally a significant tie while you are away (para 1.12). Occasional visits after you cut ties do not change your status, but regular visits combined with remaining ties are weighed against you (para 1.20). The trap: keeping a furnished home and coming back every summer can keep you a resident of Canada.

You usually become a non-resident on the latest of the day you leave, the day your spouse or partner and dependants leave, and the day you become resident in the new country. If you are returning to a country you lived in before Canada, it is usually the day you leave, even if a spouse stays behind to sell the home (CRA). See the date you become a non-resident and, for US winters, snowbirds and US residency.

What is taxed when a retiree leaves Canada, and what is not?

On the day you leave, you are treated as selling most of what you own at fair market value, and any gain goes on your departure return (s. 128.1(4)(b)). For most retirees, that means non-registered stocks, funds and similar investments.

The registered plans, pensions and CPP and OAS rights are "excluded rights or interests" under s. 128.1(10); Canadian real property is excluded by s. 128.1(4)(b)(i). They are taxed later, as you draw on them or sell. If the reportable property you own when you leave is worth more than $25,000 in total, you also file Form T1161; Canadian real estate you keep counts toward that total, while cash, registered plans, pensions and personal-use items worth less than $10,000 each do not (s. 128.1(9) and (10)). If you lived in Canada no more than 60 months in the preceding 120 months before leaving (the short-term resident rule), property you brought with you or inherited while here is not deemed sold (s. 128.1(4)(b)(iv)). Your TFSA stays tax-free in Canada but gets no new room while you are a non-resident (CRA). You can elect on Form T1244, by April 30 of the year after you leave, to defer paying the tax on the deemed gain until you actually sell; above a set amount the CRA asks for security (CRA). Forms, the security rule and the full calculation are in leaving Canada; for the house, see keep or sell your home.

Can you keep collecting CPP and OAS if you live outside Canada?

CPP, yes: the retirement pension, survivor's pension and disability benefit can be paid outside Canada (Service Canada). OAS, only if you lived in Canada at least 20 years after age 18, or reach 20 years by combining time in a country that has a social security agreement with Canada (OAS eligibility; while receiving OAS). Not every agreement is the same: the one with China, for example, is a limited agreement about social security coverage (China), so read your country's agreement page before counting on it.

A social security agreement only helps you qualify; it does not raise the payment, which is based on your periods in each country (agreements). The GIS stops once you are outside Canada for more than six months (GIS). Service Canada compares its information with the Canada Border Services Agency; telling it before you leave helps prevent overpayments you may have to repay (while receiving OAS).

How much does Canada withhold from CPP, OAS, RRIF and pension payments once you live abroad?

Canada withholds non-resident tax of 25% at source from each of these payments unless a tax treaty sets a lower rate (s. 212(1); Service Canada). For most of them, that withholding is usually your final Canadian tax (CRA).

OAS abroad can also carry a recovery tax for higher incomes and a yearly OAS Return of Income; both are covered in the non-resident return for pension income. Your new country may tax the same payments; its rules decide whether it gives a credit for the Canadian tax.

Do tax treaties lower the withholding, and how do you find your country's rate?

Often, yes. A treaty between Canada and your new country can lower the rate or exempt a payment, and the rate can differ by payment type: Service Canada's table lists OAS, CPP pensions and CPP death benefits separately (Service Canada). With no treaty, the full 25% applies unless the CRA approves a lower amount on Form NR5 (apply by October 31; it then means filing a Canadian return every year); see Form NR5.

To find your rate:

1. Check whether your country is on the list of tax treaties in force.
2. For CPP and OAS, read your country's row in Service Canada's rate table.
3. For a workplace pension or RRIF, read the treaty's pension article. Treaty pension rates generally cover only periodic pension payments: a RRIF payment above the greater of twice the yearly minimum and 10% of the fund's start-of-year value, an RRSP withdrawal, or a lump sum from a pension plan is not periodic (Income Tax Conventions Interpretation Act, s. 5), so it may face the full 25%.
4. Tell each payer you are a non-resident and which country you live in.

Country pages cover the common destinations, for example Portugal, Mexico, Thailand and the Philippines. To ask the CRA for a lower amount withheld on future payments, see Form NR5.

Do retired non-residents still file a Canadian return every year?

Not always. If your only Canadian income is pensions and RRIF payments already taxed at source, no yearly income tax return is generally required. One exception: if you receive OAS abroad, the CRA says you must file the OAS Return of Income every year (CRA), unless the CRA's exception for your country of residence applies for that return year. Service Canada describes it as living where non-resident tax on Canadian pensions is lower than 25%, but the CRA publishes the list of countries each year and it requires residence there at year-end (CRA: OAS Return of Income; Service Canada). Send it by April 30; if the CRA does not receive it, OAS payments stop from July. Separately, a section 217 return is optional and can refund part of the withholding when your total income is low. If you rent out your Canadian home, the rent brings its own withholding and filing; see keep or sell your home.

The section 217 return and the OAS Return of Income are explained in the non-resident return for pension income. For how to decide year by year, see do you file every year after leaving Canada.

Should you draw the RRSP, convert to a RRIF or commute a pension before or after you leave?

Compare two rates: your Canadian marginal rate in the departure year against the non-resident rate after you leave. Treaty rates often cover only periodic pension and RRIF payments, so a lump-sum RRSP withdrawal or commuted value after leaving may face the full 25%. Before you leave, a withdrawal is added to your Canadian income at your marginal rate. After you leave, it faces non-resident tax of 25% unless your treaty lowers the rate for that kind of payment, and your new country may tax it too.

These choices are hard to undo once made. Each one has its own guide:

• Cash out an RRSP before or after leaving
• Convert an RRSP to a RRIF as a non-resident
• Take a workplace pension's commuted value or keep the pension

What should you tell Service Canada, the CRA and each payer, and when?

Tell Service Canada before you leave, tell the CRA your departure date, and tell every Canadian payer and financial institution that you are no longer a resident.

Benefits paid by the CRA, such as the Canada child benefit, generally stop when you become a non-resident; see benefits after leaving Canada and telling the CRA you are leaving.

What to gather before you retire abroad

• Departure date evidence: tickets, the date your spouse left, proof of residence in the new country.
• Ties: what happens to your home, car, bank accounts and health coverage.
• Pension statements: CPP and OAS statements, each workplace pension, and every RRIF and RRSP.
• NR4 slips once payments start, showing what was withheld.
• Cost records for every non-registered investment, to work out the deemed gain.
• Years in Canada since age 18, and years in any country that has a social security agreement with Canada.
• Your new foreign address and banking details for Service Canada and each payer.

Example

These examples use round, illustrative figures in Canadian dollars.

A couple retiring to a treaty country

Both spouses are 66 and move from Ontario. Each receives CPP of C$12,000 and OAS of C$8,500 a year; one also takes C$20,000 a year from a RRIF. Both lived in Canada 40 years after 18, so OAS continues abroad. Without a treaty, each payment would face 25% withholding: C$3,000 on each CPP, C$2,125 on each OAS and C$5,000 on the RRIF. Their country's treaty may set lower rates, and the rate can differ for OAS, CPP and the RRIF; the RRIF's treaty rate depends on staying within the periodic-payment limit.

A retiree with a large portfolio

A retiree owns a non-registered portfolio worth C$400,000 that cost C$250,000. Leaving Canada deems it sold, so his departure return reports a C$150,000 capital gain, even though he sold nothing. His C$300,000 RRIF and his workplace pension are not deemed sold; Canada taxes them later, through withholding, as he draws them.

An immigrant returning to her birth country

A retiree came to Canada at 50 and has 16 years here after age 18. She moves back to her birth country, whose social security agreement with Canada counts residence toward OAS. Her years living or working there may count toward the 20 years needed to keep OAS abroad. Without that credit, her OAS may stop once she has been outside Canada more than six months. If she has a CPP retirement pension, it can still be paid abroad.

Different for you?

• You already left without filing a departure return, telling Service Canada, or filing the OAS Return of Income: late returns, penalties and benefit overpayments can follow; see left Canada without telling the CRA, late departure forms and get help with individual tax.
• You keep your Canadian home or return every summer: your residency may not have ended; see Canadian tax residency and get help with individual tax.
• You have a large non-registered portfolio: the deemed sale and deferral options are in leaving Canada; a professional review through individual tax can test the numbers before you go.
• You have two or more pensions, or a pension plus a RRIF: the withholding, treaty and section 217 choices interact; see the non-resident return for pension income and individual tax.
• You are deciding whether to commute a pension or cash out an RRSP: see workplace pension when you move abroad and RRSP cash-out timing.
• You lived in Canada fewer than 20 years after 18: whether an agreement counts your other years decides if OAS continues; see social security agreements and individual tax.
• You rent out your Canadian home: see keep or sell your home and individual tax.
• You are retiring to the US: both countries' rules apply; see moving from Canada to the US and cross-border tax.
• You need a full list of departure steps: use the leaving Canada tax checklist.