RRSP, RRIF and TFSA After Moving to the US: Canadian Withholding

What happens to my RRSP, TFSA and Canadian accounts after moving to the US?

You can generally keep every Canadian account after you move. What changes is tax: Canada withholds non-resident tax when certain money is paid to you, usually as your final Canadian tax, and the US taxes you as a resident (CRA: T4058). You must tell every Canadian payer and financial institution that you are no longer a resident (CRA: Leaving Canada).

Sources for the table: CRA: T4058, CRA: non-resident TFSAs, CRA: non-resident FHSAs and the Canada–US treaty.

A case is not simple when you plan a large withdrawal, weigh a section 217 return, live in a state that taxes these accounts differently, or hold Canadian funds that the US treats as foreign investment companies. Gather your non-resident date, the account statements, each payer's address and residence record for you, and every NR4 slip.

Departure tax, the final Canadian return and RRSP contributions after leaving are covered in Leaving Canada. Whether to cash out an RRSP before the move, and FHSA choices in the move year, are in Moving from Canada to the US.

How much is the RRSP withdrawal non-resident withholding tax compared with a RRIF?

An RRSP cash withdrawal by a US resident is withheld at 25%. RRIF payments within a yearly line are periodic pension payments, which the treaty caps at 15% of the gross payment.

The difference comes from the statutory definition of a periodic pension payment. It excludes any RRSP payment before the plan matures, and any lump sum that pays out all or part of a matured RRSP's retirement income; annuity payments from a matured RRSP can be periodic. For a RRIF, a payment stops being periodic once, counting that payment, the year's RRIF payments exceed the greater of:

• twice the year's RRIF minimum amount, and
• 10% of the fund's value at the start of the year.

The whole payment that crosses the line loses the cap, not only the part above it, and so does every later RRIF payment that year. See the Income Tax Conventions Interpretation Act, section 5 and treaty Article XVIII(2)(a). Payments that are not periodic fall back to the 25% statutory rate on pensions (CRA: IC76-12).

Does converting my RRSP to a RRIF lower the withholding to 15%?

Only for RRIF payments that stay within the yearly line: they qualify for the 15% treaty cap, while an RRSP cash withdrawal never does. A direct transfer from an unmatured RRSP into a RRIF has no immediate tax effect (CRA: T4040).

The RRSP must mature by the end of the year you turn 71: you withdraw it, transfer it to a RRIF or buy an annuity (CRA: Options at 71; CRA: T4040).

A RRIF must pay a minimum each year starting the year after it is set up. The minimum is the fund's value at the start of the year times a prescribed factor based on age (CRA: Minimum amount from a RRIF). In the year the RRIF is set up there is no minimum, so the 10% test sets the line, and money transferred in that year counts as if it was there at the start of the year (section 5). A lower Canadian rate can mean a smaller US credit for Canadian tax, so the total across both countries decides whether converting helps.

How do I get the treaty rate: Form NR301 and a non-resident address?

Give the payer a US residence address, and Form NR301 if it asks. The CRA lets a payer apply a treaty rate to a US individual without NR301 when it has a complete permanent residence address (not a post office box or care-of address), knows the payee is a US individual, and has no reason to doubt the information (CRA: Beneficial ownership and treaty benefits).

Form NR301 is a declaration you complete and give to the payer, not to the CRA. It is not mandatory, but if you refuse to certify after being asked, the payer should withhold the full statutory rate. Fill in the country of residence for treaty purposes; a mailing address alone does not decide it. The treaty rate is only for a US resident under the treaty; when your Canadian residence ends and US residence starts is in Moving from Canada to the US. A change of mailing address to another country is a signal for the payer to ask for a new form (CRA: Forms NR301, NR302 and NR303).

Which country taxes RRSP and RRIF payments, and how do I avoid paying tax twice?

Both countries can. Canada taxes the payment at source through withholding; the US, as your country of residence, taxes it on your US return (treaty Article XVIII(1)). The treaty's Article XXIV(1) has the US allow a credit for income tax paid to Canada, subject to US limits.

Income that stays inside an RRSP or RRIF can be deferred for US tax; eligible individuals get that deferral automatically under IRS Revenue Procedure 2014-55. How the IRS taxes each payment is in Canadian registered accounts on a US return. Claiming the Canadian tax as a US credit is in Foreign income on a US return. A state may not follow the federal rules; see State tax on RRSPs and TFSAs.

Canada's withholding on RRSP and RRIF payments is generally its final tax, but a section 217 return, which taxes that income at graduated rates instead, can sometimes recover part of it.

What does Canada take from dividends, interest and sales in a non-registered account?

Canada withholds on dividends, not on most interest or sale proceeds. Dividends from Canadian corporations carry a 25% statutory rate, capped at 15% for a US resident individual (Income Tax Act, section 212; treaty Article X(2)(b)).

The interest exemption applies when the payer deals with you at arm's length, as an unrelated bank usually does (CRA: T4058). Treaty Article XIII(4) generally leaves other gains to the country where you live. Article XIII(5) keeps Canada's right, under its own law, to tax a long-time resident's gain on property owned at departure and not taxed then, if sold within ten years of leaving; see Leaving Canada. Listed shares and fund units become taxable Canadian property only in narrow cases, such as when, at some time in the previous 60 months, you and people you do not deal with at arm's length owned 25% or more of a class and more than half its value came from Canadian real or resource property (CRA: T4058).

The US taxes this income as a resident's. Canadian mutual funds and ETFs can be passive foreign investment companies once you are a US resident; see PFIC rules when moving to the US.

What is the NR4 slip, and how do I use it?

The NR4 slip reports what a Canadian payer paid you as a non-resident and the tax it withheld. Payers must give it to you by the last day of March after the year. Only amounts paid while you were non-resident go on the NR4; payments from before you left go on resident slips such as a T4RSP or T5 (CRA: T4061).

Check each NR4 for:

• the country of residence, which should be the United States;
• the income code, which shows whether a RRIF or RRSP amount was treated as periodic or lump sum;
• the rate: tax withheld divided by gross income.

Use the NR4 to support the Canadian tax you claim as a credit on your US return and, if you file one, on a section 217 return.

Should I keep or close my TFSA after moving to the US?

Canada lets you keep a TFSA and withdraw from it without Canadian tax, but the US does not treat it as tax-free. Income earned in the TFSA "may be taxed in your country of residence," as the CRA puts it (CRA: non-resident TFSAs).

What changes in Canada:

• No new contribution room builds up for a full year of non-residency.
• A contribution made while non-resident is taxed at 1% for each month it stays in the account; see TFSA over-contribution and non-resident tax.
• Amounts you withdraw while non-resident are added back to your room only when you become a resident again.

What changes in the US is how the account's income is taxed and which forms report it, covered in Canadian registered accounts on a US return. Funds held inside the TFSA can raise the PFIC rules. Whether keeping it pays depends on the yearly US tax and reporting, weighed against the room you would lose by closing it if you move back.

My bank still treats me as a Canadian resident or withheld the wrong rate: how do I fix it?

First tell the payer in writing that you are a non-resident, give your US residence address, and complete Form NR301 if asked. That fixes future payments. Ask for corrected slips if a payment after your non-resident date went on a resident slip (CRA: T4061).

Example

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

An RRSP cash-out from Pennsylvania

Priya lives in Pennsylvania, her plan has her US address, and she cashes out a C$60,000 RRSP. An RRSP withdrawal is not a periodic pension payment, so the plan withholds 25%, or C$15,000, and pays her C$45,000. She receives an NR4. The withdrawal is also reported on her US return, where the Canadian tax may support a credit; a section 217 return is a separate choice.

An RRSP converted to a RRIF at 66

Tom turns 66 in year 1, transfers a C$300,000 RRSP to a RRIF that year and takes C$18,000 a year. His payer has his US address on file.

• Year 1: no minimum is required. The line is 10% of C$300,000, or C$30,000. The C$18,000 is within it, so the payer can apply the 15% cap: C$2,700.
• Year 2: Tom is 66 on January 1 and the fund is worth about C$290,000. Twice the minimum is about C$24,200 (the minimum is C$290,000 divided by 90 minus 66); 10% is C$29,000, the higher line. C$18,000 is within it, so 15% applies again.
• If Tom took C$40,000 in year 2, the year's payments would pass the C$29,000 line. The whole payment that crosses it, not just the part above it, and every later RRIF payment that year would not be periodic and would face 25%: C$10,000 on a single C$40,000 payment.

A TFSA kept in Texas

Ana keeps a C$15,000 TFSA in a savings deposit after moving to Texas and earns about C$450 of interest a year. Canada does not tax the interest or a withdrawal, and she gets no new room. The interest she earns after becoming a US resident goes on her US return.

Different for you?

• You are still deciding what to do before the move: see Moving from Canada to the US.
• You want part of the Canadian withholding back: see the section 217 return; a large withdrawal is a case for cross-border tax help.
• You owe departure tax or a final Canadian return: see Leaving Canada.
• You have an unpaid Home Buyers' Plan balance: see HBP balance when you leave Canada.
• Your TFSA or investment account holds Canadian funds: see PFIC rules when moving to the US and cross-border tax help.
• Your state taxes RRSP or TFSA growth: see State tax on RRSPs and TFSAs.
• You contributed to a TFSA after leaving: see TFSA over-contribution and non-resident tax.
• You need to report the accounts to the IRS: see Canadian registered accounts on a US return and which accounts go on the FBAR.