Receiving Canadian Pensions Abroad

Overview

Moving outside Canada does not necessarily mean giving up Canadian retirement benefits. In many cases, the Canada Pension Plan (CPP), Old Age Security (OAS), workplace pensions and withdrawals from Canadian registered plans can continue to be paid while you live abroad.

However, several important rules may change:

• CPP and OAS do not have the same eligibility rules.
• GIS and the Allowances generally cannot continue after an absence of more than six months.
• Canadian non-resident withholding tax may be deducted from pension payments.
• An income tax treaty may reduce or eliminate Canadian withholding tax.
• The country where you live may also tax the income.
• Non-resident OAS recipients may have additional annual filing requirements.

The destination country, your Canadian tax residency and your years of residence in Canada can materially affect the result.

Quick Reference

1. Canada Pension Plan

You can generally receive your Canada Pension Plan retirement pension while living anywhere in the world.

CPP eligibility and the amount paid are based mainly on how much and for how long you contributed, your pensionable earnings and the age at which you begin receiving CPP. Your CPP retirement pension does not stop simply because you leave Canada.

CPP payments made to a non-resident may be subject to Canadian non-resident withholding tax. The rate depends on the country where you are a tax resident and whether Canada has an applicable income tax treaty with that country.

Working or Living in Another Country

Canada has social security agreements with many countries. These agreements coordinate pension programs for people who have lived or worked in more than one country and may help you qualify for a Canadian pension, a pension from the other country or pensions from both countries.

The agreement does not normally combine the two pensions into one payment. Each country usually calculates and pays its own benefit under its own rules.

2. Old Age Security

Old Age Security is different from CPP. OAS is based mainly on residence in Canada after age 18, rather than employment contributions.

Receiving OAS Outside Canada

Your OAS pension can generally continue outside Canada if you lived in Canada for at least 20 years after age 18, or if you meet the 20-year requirement with help from an applicable social security agreement.

If you do not meet the requirements for receiving OAS abroad, OAS can generally be paid for only up to six months after the month you leave Canada.

Partial OAS Pension

A partial OAS pension is generally calculated according to the number of complete years you lived in Canada after age 18, divided by 40. For example, 20 years generally produces 20/40, or 50%, of the full OAS pension; 30 years generally produces 30/40, or 75%; and 40 years generally produces the full pension.

A social security agreement may help you satisfy the minimum eligibility requirement. It does not necessarily increase the Canadian portion of your pension, which is generally based on your actual qualifying years of Canadian residence.

Delaying OAS While Living Abroad

OAS can normally be delayed beyond age 65. The pension increases by 0.6% for each month of deferral, up to 36% at age 70.

Delaying OAS does not solve an insufficient-residence problem. Someone living outside Canada with fewer than 20 qualifying years and no applicable social security agreement should confirm eligibility before relying on the deferral increase.

3. GIS and the Allowances

The Guaranteed Income Supplement, Allowance and Allowance for the Survivor are intended for eligible people living in Canada.

These benefits generally stop after you have been outside Canada for more than six months, regardless of how long you previously lived in Canada. This restriction applies even when OAS itself continues to be paid abroad.

Before leaving Canada for more than six months, contact Service Canada. This can help prevent an overpayment that may later have to be repaid. When you return to live in Canada, contact Service Canada so your eligibility can be reviewed and payments can be restarted when appropriate.

4. Employer Pensions, RRSPs and RRIFs

Most Canadian employer pensions can be paid to a retiree living abroad, but the rules and payment arrangements depend on the pension plan.

RRSP and RRIF withdrawals can also normally be made while you are a non-resident. Canadian withholding tax may apply to employer pension payments, annuity payments, RRSP withdrawals, RRIF withdrawals and other Canadian pension income.

Regular periodic pension payments and lump-sum withdrawals may receive different treaty treatment. Before making a large withdrawal, confirm the Canadian withholding rate and the tax treatment in your country of residence.

Ask the pension administrator or financial institution:

• whether it serves residents of your destination country;
• whether it can deposit payments into a foreign bank account;
• which currency will be used;
• which Canadian withholding rate will be applied;
• whether extra transfer, conversion or administration fees apply; and
• whether any account restrictions apply after you become a non-resident.

5. What Happens to a TFSA?

Canada does not tax TFSA withdrawals, including withdrawals made by a non-resident.

However, after becoming a non-resident:

• you do not accumulate new TFSA contribution room for a full year in which you are a non-resident;
• non-resident contributions may be subject to Canadian penalty tax; and
• another country may not recognize the TFSA as tax-free.

Interest, dividends and capital gains earned inside a TFSA may therefore be taxable in the country where you live. Obtain advice about the destination country before deciding whether to keep a TFSA after leaving Canada.

6. Canadian Tax Residency

Leaving Canada does not automatically determine your Canadian tax residency. Residency is based on the facts of your situation, including your residential ties, the purpose and permanence of the move and any applicable tax treaty.

If You Remain a Canadian Tax Resident

You generally continue to file a regular Canadian income tax return, report worldwide income and pay Canadian tax under the rules applying to Canadian residents.

If You Become a Non-Resident

You are generally subject to Canadian tax on specified Canadian-source income, including Canadian pensions and registered-plan withdrawals.

Your date of departure may also trigger other tax consequences, including a deemed disposition of certain property. Pension eligibility and tax residency are separate questions: continuing to receive CPP or OAS does not mean you remain a Canadian tax resident.

People who want the CRA’s opinion about their residency status can consider Form NR73, Determination of Residency Status—Leaving Canada. Because the form requests extensive information and the answer can have significant tax consequences, professional advice may be appropriate before submitting it.

7. Canadian Non-Resident Withholding Tax

The usual Canadian Part XIII non-resident withholding tax rate is 25%.

The 25% rate may be reduced or eliminated by an income tax treaty between Canada and your country of residence. Rates can differ according to the country, the type of pension, whether the payment is periodic or a lump sum, the amount received and special treaty exemptions.

Canadian payers generally need to know that you are a non-resident and the country in which you reside so that they can apply the appropriate withholding rate.

8. Section 217 Tax Return

For many non-residents, the tax withheld from Canadian pension income is their final Canadian tax obligation. However, certain non-residents can elect to file a Canadian income tax return under section 217 of the Income Tax Act.

A section 217 election calculates Canadian tax on eligible pension income using rules similar to those applying to Canadian residents. It may result in a refund of some or all of the non-resident tax withheld.

Eligible income can include certain CPP and QPP payments, OAS payments, employer pensions, RRSP payments, RRIF payments and annuity payments.

The calculation considers income reported on the return and may also require disclosure of net world income. A section 217 election is not automatically beneficial in every case. The CRA applies the election only when it is beneficial, provided the return is filed by the required deadline.

9. Form NR5

A non-resident who expects a section 217 election to reduce Canadian tax may apply to have less tax withheld during the year using Form NR5, Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to Be Withheld.

If approved, the payer may reduce the withholding tax, the approval usually covers up to five tax years, and a section 217 return must be filed for every year covered by the approval.

Form NR5 does not eliminate the need to file the required returns. If circumstances or income change, the approval may need to be reviewed.

10. OAS Recovery Tax and the OASRI Return

A non-resident receiving OAS may be subject to the OAS recovery tax, commonly called the OAS clawback, based on net world income.

Non-resident OAS recipients generally need to file Form T1136, Old Age Security Return of Income (OASRI) each year. The return allows the CRA to determine whether recovery tax applies and how much should be deducted from future OAS payments.

Some residents of countries whose tax treaties provide an exemption may not have to file the OASRI. The exemption depends on the country and the applicable treaty. Failing to file a required OASRI can result in OAS payments being interrupted.

Non-residents receiving CPP or OAS generally receive an NR4 information slip showing the benefits paid and Canadian tax withheld.

11. Tax in the Country Where You Live

The country where you live may tax Canadian retirement income even when Canada also withholds tax.

An income tax treaty may reduce Canadian withholding tax, give one country the primary right to tax the pension, exempt a particular type of pension or allow a foreign tax credit for tax paid to the other country.

The result depends on the exact treaty and the domestic tax law of the destination country.

Before moving, obtain advice about how the new country treats CPP and OAS, employer pensions, RRSP and RRIF withdrawals, TFSAs, Canadian investment accounts, Canadian real estate and foreign tax credits.

12. Receiving Payments Abroad

CPP and OAS payments can be deposited directly into accounts in Canada and in participating foreign countries.

In supported countries, payments may be issued in the local currency. The net amount received can be affected by the exchange rate, foreign-exchange spreads, bank charges, correspondent-bank fees and the timing of currency conversion.

Compare the cost of:

1. keeping a Canadian bank account and transferring money yourself;
2. receiving direct deposits into a foreign account; and
3. using a regulated currency-transfer service.

Keep Service Canada, the CRA, pension administrators and financial institutions informed of changes to your address, country of tax residence, banking information, marital status and contact information.

13. Before Moving Abroad: Checklist

Pension Eligibility

• Obtain your CPP Statement of Contributions.
• Confirm your estimated CPP retirement pension.
• Confirm how many years of Canadian residence Service Canada will recognize for OAS.
• Determine whether OAS can continue after six months abroad.
• Check whether Canada has a social security agreement with the destination country.
• Notify Service Canada if you receive GIS, the Allowance or the Allowance for the Survivor.

Tax Planning

• Determine whether you will remain a Canadian tax resident or become a non-resident.
• Identify your expected date of departure for tax purposes.
• Review the Canadian departure-tax rules.
• Check the income tax treaty with the destination country.
• Confirm the withholding rate for each pension and registered account.
• Determine whether a section 217 election may be beneficial.
• Consider Form NR5 when reduced withholding may be appropriate.
• Confirm whether an annual OASRI return will be required.
• Determine how the destination country taxes CPP, OAS, pensions, RRSPs, RRIFs and TFSAs.

Payment Arrangements

• Confirm that each payer can make payments to the destination country.
• Decide whether to keep a Canadian bank account.
• Arrange direct deposit.
• Compare currency-conversion and transfer costs.
• Update your mailing address and banking information.
• Arrange secure access to My Service Canada Account and CRA services.

Broader Retirement Planning

• Review health insurance and medical coverage abroad.
• Update wills and powers of attorney for both countries when necessary.
• Review beneficiary designations.
• Confirm how Canadian and foreign estates will be administered.
• Obtain country-specific immigration and residency advice.

Common Mistakes to Avoid

Assuming CPP and OAS Have the Same Rules

CPP is based mainly on contributions. OAS is based mainly on Canadian residence. A person may be able to receive CPP abroad but not qualify to continue OAS beyond six months.

Expecting GIS to Continue Indefinitely

GIS and the Allowances generally stop after an absence of more than six months, even when OAS continues.

Assuming the Withholding Rate Is Always 25%

Twenty-five percent is the usual rate, but a tax treaty may reduce or eliminate it.

Treating a TFSA as Tax-Free Everywhere

The TFSA is tax-free under Canadian law, but another country may tax the income and gains inside it.

Making a Large RRSP or RRIF Withdrawal Without Checking the Treaty

Lump-sum and periodic payments may be taxed differently. A poorly timed withdrawal can create unnecessary withholding or foreign tax.

Ignoring the OASRI Filing Requirement

A non-resident receiving OAS may need to file the OASRI annually, even when no regular Canadian income tax return would otherwise be required.

Assuming Pension Eligibility Determines Tax Residency

You can receive Canadian pensions as a non-resident. Receiving CPP or OAS does not, by itself, establish Canadian tax residency.

Official Sources

• Lived or living outside Canada—pensions and benefits
• OAS program toolkit
• Old Age Security—while receiving OAS
• Old Age Security—when to start
• Taxes on pensions and benefits for people outside Canada
• Non-residents of Canada
• Non-resident seniors
• Electing under section 217
• Form NR5—five-year administrative policy
• OASRI guide for non-residents
• Determining your residency status
• Form NR73—Determination of Residency Status
• Canada’s income tax treaties
• How non-residency affects your TFSA