Question: I have some questions about RRSPs and leaving Canada. From your article – RRSP’s & Moving To The U.S. You mention that it might make sense to leave your investments inside your retirement account when you leave Canada and avoid the withholding tax and the U.S. tax on the withdrawal.
My case, I have invested in stocks in my RRSP account. If I moved to Europe or the Middle East, I want to keep my RRSP as long as I can but not more than 20 years. Can you please advise me on the following questions?
- If I lose my permanent residence status because I am out of Canada, is it possible to keep my RRSP?
- If I withdraw less than $5,000 each year how much tax will I pay and should I file a tax return?
- Do I need to worry of anything else like losing my investments?
- Will the bank refuse to send me my money if I leave?
Who Can Contribute to an RRSP?
Anyone who has earned income while resident in Canada, or who has employment income from working in Canada can contribute to an RRSP.
Ceasing To Be A Resident & Your RRSP
If you leave Canada but leave your RRSP in Canada, your stocks and other investments will continue to grow tax free until you turn age 71. At age 71, your RRSP must be converted into a registered retirement income fund (RRIF), and annual withdrawals must be taken fro the account.
When you stop being a Canadian resdient, any withdrawals from your RRSP or RRIF are subject to Canadian non-resident withholding tax at 25%. The withholding tax may be reduced if a treaty exists between your new country and Canada. My previous article indicated that the withholding tax was 15%. This rate is the rate between Canada and the U.S.
The withholding tax rates on withdrawals from retirement accounts is the subject of tax treaties. These rates apply to regular pension withdrawals when you are over age 65 and drawing retirement income. Otherwise the withholding is 25%. In either case, you do not need to file a Canadian tax return as long as you are not a resident of Canada.
Other Considerations
If you hold stocks, bonds or mutual funds in your RRSP and you are no longer a resident of Canada, you can withdraw from your RRSP, but may not be able to buy stocks or other investments through your stock broker due to Canadian securities laws. I would suggest discussing your concerns with the broker that holds your RRSP. They should be able to explain any issues with your planned move.
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{ 10 comments… read them below or add one }
My wife is a Canadian citizen and has an RRSP account since she was working in Canada. She moved to US a few years ago and is now a US permanent resident. She hasn’t made any new contributions after coming to US.
She has some money sitting as cash in RRSP that she would like to invest soon. Can she trade in the RRSP account (buy/sell stocks, ETFs) as a US permanent resident?
@ Rohan:
If the money is in cash and she is no longer a resident, re-investing in the RRSP is probably not allowed (she needs to be a resident to buy securities).
She should consider moving the funds to the U.S. There will be 25% withheld when the RRSP is moved and she may have some U.S. tax consequences as well.
Take a look at the attached article by Tim Cestnick.
I’m Canadian, living as a permanent resident in the US. I don’t see myself moving back and want to cash out my small amount of ~$5,000 RRSP. I think I initially invested that amount and it is currently worth lower than that now. The thing is, I haven’t claimed on my US income tax that I had foreign investments, because it was such an insignificant amount, since I moved here 9 years ago. Could you please advise on what I should do? Thanks.
@Laura: Ideally you should have disclosed the account and filed forms with your 1040 claiming the treaty exemption. You should contact a CPA and see if you should make a voluntary disclosure.
Once you make the withdrawal, the US will treat it just like a withdrawal from an IRA except there is no 10% penalty tax.
my wife and I are moving to Mexico this year, next year I would like to be able to access my RRSP’s (for emergencies if necessary). Any suggestiions
If you are ceasing to be a resident then a lump-sum payment would be taxed at a rate of 25% for non-residents. You could turn it into a RRIF just before leaving and those payments would be subject to a 15% withholding. These payments may be taxed in Mexico as well.
Beyond that, I have no suggestions.
I have approximately $30,000 in an RRSP and I’m 44 in age, I would like to use the money as either a financial safety net or invest it into a business my wife and I want to start in Mexico. If I was to take the money as a lump-sum in 2011 and I pay the 25% rate could I/should I then file a tax return in Canada for the 2011 tax year? I plan on leaving my job before the end of the 2010 tax year so I suppose I could look at removing the money this year and see what the tax hit would be
Once you are no longer a resident of Canada you do not file a return unless you have real estate (or other taxable Canadian property, of which an RRSP is not). The 25% withholding is a non-resident tax and you can’t get it back from Canada. You might get a credit from Mexico because the de-registration may have a tax impact to you in Mexico.
Use the site calculator to figure out your tax option as a resident of Canada. Enter your income before and after the transaction. http://blog.taxresource.ca/tax-rates/2010-personal-income-tax-calculator/
I am a Canadian citizen and am planning to move to Australia for a year or two to do a working holiday visa. By the time I leave at the end of Oct 2010 I will have rrsp investments of about $4000 in a company matching rrsp account. For this year (2010) I am eligible to purchase a total of $27,000 in rrsp’s.
My thought was to take out a short term loan and purchase an extra 10,000 in rrsp’s before I leave for Australia and then withdraw all of my rrsp investments in January of 2011. With the way I am currently seeing it (which is probably incorrect) this should get me a significant amount of taxes back for 2010, and then the only income I will be taxed on in 2011 in Canada would be my rrsp withdrawals of approximately $14,000, which the 10% withholding tax should cover. Is this kind of thing allowed? Or would the rrsp’s I withdraw be taxed in Australia? Is there a minimum amount of time that you must leave your money in an rrsp to avoid unexpected clawbacks? Any other issues I may face with trying to do this?
I will be working in Australia at mostly temp jobs and the like, as well as I will most likely not have a permanent residence in AUS. At any time, as the main reason for me going is to travel.
Any advice on this would be greatly appreciated. Thank you for your time.
The first thing you need to make sure you do is to cease to be a Canadian resident before you make the withdrawal. Failure to get confirmation from the CRA could affect your plan.
If you are not a resident of Canada and make a lump-sum withdrawal from the RRSP, you would be subject to a 25% non-resident withholding tax on the withdrawal.
If you happen to be a resident of Australia for tax purposes at the time of the withdrawal, the distribution may be considered Australian taxable income. If so, tax rate in Australia would apply at a rate of 15% on amounts over $6,000 AUD and 30% on amounts over $6,000AUD and below $80,000AUD.
No matter how you look at it, the bare minimum tax you might pay would be 25% flat.