Personal Finance

How relocating abroad affects your public pensions and registered plans.
By Gail Bebee | 17/02/17

Is the siren song of warmer climate and lower costs enticing you to retire abroad? Are you planning to relocate to another country for work? No matter the reason, before packing up, take the time to determine the fate of your government retirement benefits and registered savings plans if you move abroad. What you discover could affect your decision to relocate.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

Once you become a non-resident of Canada, you no longer earn Old Age Security, Canada Pension Plan or Quebec Pension Plan credits. You will be eligible for OAS if you are at least 65 years old, were a Canadian citizen or resident when you left, and resided in Canada for at least 20 years since the age of 18. Any CPP/QPP benefits you receive will be based on the standard CPP/QPP calculation method which incorporates your total CPP/QPP contributions and how long you contributed.

You may be able to combine your periods of contribution/residency in Canada and another country to meet the minimum qualifications for a pension benefit in one or both countries, if Canada has signed a social-security agreement with the other country. Your Canadian benefit amount will be based on your Canadian contributions/residency only. These agreements vary by country. Service Canada International Operations will provide details on the rules in place with a particular country.

If you qualify for OAS and/or CPP benefits, Service Canada will deliver your monthly payments to your home abroad. No matter the country, payments are issued at the same time as they are in Canada, usually during the last three banking days of the month. If you retire in the U.S., Mexico, Costa Rica or any of the countries which appear on Service Canada's list, your pension cheques will be sent in the currency of the country where the cheques are mailed. Otherwise, payments are made in Canadian currency. Where a foreign country has suitable financial systems in place, direct deposit to your local bank account in the local currency is possible. The Quebec Pension Plan will also send payments abroad, and direct deposit is an option for certain countries.

Withholding tax may be deducted from your government benefits and other Canadian income if you reside outside Canada. The default tax rate is 25%, but this could be reduced or exempted if Canada has a tax treaty with your country of residence.

If you close an RRSP or a registered retirement income fund (RRIF) when you become a non-resident of Canada, the proceeds will be subject to a departure tax. Since there is no obligation to close such plans, it may make sense to keep them in place while you live abroad. Earnings in these accounts continue to be tax-deferred in Canada, but they may be subject to tax in your new country of residence. The accounts could also trigger information-reporting requirements. For example, according to the accounting firm Grant Thornton LLP, a U.S. resident with an interest in a financial account held outside the U.S. may be required to file a Report of Foreign Bank and Financial Account Form annually.

After relocating abroad, you can continue to make RRSP contributions if you had outstanding contribution room when you left Canada, but the tax deduction applies only to Canadian income. If you borrowed from your RRSP under the Home Buyers Plan (HBP) or Lifelong Learning Plan (LLP), any money still owing when you become a non-resident of Canada must be paid back within 60 days of departure, or it will be treated as taxable income in the year you depart. As of Jan. 1, 2008, a locked-in retirement account (LIRA) owner of any age who is a non-resident of Canada may apply to unlock and withdraw all the money in her account two years after departing Canada.

Tax-free savings account (TFSA) contributions can be made only by Canadian residents. Any contributions made by a non-resident are heavily taxed by the Canada Revenue Agency: 1% for each month any part of the contribution remains in the account; and a separate tax of 1% per month if any of the same contribution creates an excess amount in your TFSA. Because of the tax rules, the contribution room created by a TFSA withdrawal by a non-resident is only of value to those who plan to re-establish Canadian residency at some point.

There is no tax due if you close your TFSA before leaving Canada. If you keep the account open after relocating, your TFSA earnings will not be taxed by the Canadian government, and you can make tax-free withdrawals. However, TFSA earnings could be taxable in your new country of residence and the account may be subject to reporting requirements.

A registered education savings plan (RESP) subscriber who gives up Canadian residency can keep the plan open, but can no longer make contributions. She may be required to pay taxes to her new country of residence on any RESP earnings and grant or bond money received. This could result in double taxation as the student beneficiary will pay tax on the same money when it is withdrawn for education. These drawbacks can be avoided, before moving abroad, by naming a new subscriber who is a Canadian resident. Note also that if a beneficiary becomes a non-resident of Canada, RESP contributions can no longer be made, and government RESP grants/bonds will not be available.

Canadian ex-pats can continue to hold investment accounts located in Canada, including registered plans, but are not permitted to buy Canadian-based mutual funds for these accounts. Any funds owned on departure can be kept. Allowable investments include stocks, bonds, GICs and exchange-traded funds.

Relocating abroad is a complex undertaking which encompasses many issues beyond the fate of government retirement benefits and registered savings plans. Seeking the advice of professionals with appropriate expertise early on in the process will minimize costly and/or time-consuming missteps and facilitate a successful transition to your new home.

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