So what should you do with your RRSP if you leave Canada? The simple answer is you can keep your RRSP as is. However, if you want to access the funds in the future there will be a 25% tax withholding, this amount is considered your tax paid. If you are happy with this you don’t need to do anything further.
If you believe your tax payable should be less than 25%, you can elect to file Canadian taxes and the difference would be refunded. Keep in mind that for RRSPs the amount you redeem is considered income for that year, which means unless you have a small RRSP and no other sources of income, your income tax payable for the amount is not likely to be less than 25% . You may also need to report the amount redeemed as part of your income in your new country as per that country’s income declaration requirements.
If you are certain ahead of time that your income tax payable would be less than 25% you can fill out Form NR5, Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld. This will reduce your withholding before the redemption even occurs. This process isn’t any easier than filling out taxes, but it only needs to be done every 5 years so it will save you needing to fill out taxes each year if you are doing multiple redemptions.
Another option is to convert your RRSP to a Registered Retirement Income Fund (RRIF) and receive regular payments from the accounts. The same minimum withdrawal requirements apply for RRIFs as they do with RRSPs and the 25% withholding tax also applies to all payments (unless your country of residence has specific tax treaties). A reduced tax withholding amount of 15% is possible for US-Canada. This reduction applies if the payment is less than the greater of 10% of fair market value or twice the minimum withdrawal requirement (amount of withdrawal < greater [10% of FMV, 2x RRIF minimum withdrawal]). A preferential NOTA BENE rate can be acquired but only if redemption is scheduled for regular periods.
As an example, suppose you have a $100,000 RRSP (as of December 31, fair market value) which has now been converted to a RRIF, you are currently 65 years and you want to make withdrawals.
The minimum required for RRIF withdrawal for the year is 4% or $4000. You would like to withdraw $12,000 a year or $1000/mon.
Under standard non-resident rules you will receive $750/mon with 25% tax withheld.
If you are in the US, to get the reduced rate: 10% of FMV is $10,000 and twice the minimum withdrawal is $8000. The greater of the two is $10,000. This means the first $10,000 of redemption is tax withheld at 15% and the excess amount is tax withheld at 25%
So for our example, the first 10 months you will received $850/mon and the last two months you will receive $750/mon.
If you are in the UK such periodic payments should not be subject to any withholding.
If you are thinking of withdrawing from your RRSP I would strongly suggest you research your own country’s tax treaty and discuss it with your institution before proceeding. They may still want to withhold 25% and let you deal with CRA to claim any amount that was taken in excess.
Of course, you always need to remember that the amount you take in as income may be subject to taxes in your new tax jurisdiction and will need to be reported as per their tax rules.
You may be able to transfer the amount into registered retirement plans, i.e. 401K etc. The reverse can be done regularly by any large financial institutions in Canada, but I generally find Canadians financial services personnel have more experience dealing with moving money to US than US financial services personnel have in transferring money to Canada.
So in summary – file an NR5 if you really think your tax rates will be less than 25% and see what number they will come up with. Know your tax treaties and use any tax treaty rules in your favour as able, but be prepared to work with your Canadian institution and educate them as required.
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