Advertisement
Withholding tax is generally the only Canadian tax a non-resident pays for their CPP pension, and the tax burden is even smaller for non-residents living in the U.S.
I moved to the U.S. at the age of 50, ten years ago, and currently live in Phoenix. When I turned 60, I applied for my Canadian CPP and started to collect. The payment is going into my Canadian bank account. My question is do I pay taxes on that money? Canadian taxes? U.S. taxes?—Richard
A non-resident of Canada who contributed to the Canada Pension Plan (CPP) can receive their retirement pension while living outside of Canada. Like Canadian residents, non-resident pensioners can apply to begin their pension any time between the ages of 60 and 70.
CPP can even be paid into a foreign bank account in a foreign currency. Whether it is paid into a Canadian bank account in Canada or into a foreign bank account elsewhere, the tax implications are the same.
There is a standard withholding tax rate of 25% that is retained at the source by Service Canada. This assumes the applicant correctly indicates their non-residency on their application form. Withholding tax is generally the only Canadian tax obligation a non-resident has for their CPP pension.
That said, Richard, U.S. residents benefit from a reduced withholding tax rate of 0%. The U.S. allows the same nil withholding tax treatment for Social Security—the equivalent of CPP in the U.S.—for a Canadian resident receiving Social Security.
U.S. residents are taxed on their worldwide income, including CPP. Canada and the U.S. have agreed in their tax treaty to only tax 85% of CPP received by a U.S. taxpayer and 85% of Social Security received by a Canadian taxpayer.
So, assuming you are considered a U.S. resident, you have no withholding tax and no Canadian tax filing obligation for your CPP, Richard. It should be reported on your U.S. tax return, and 15% of it is tax free to you.
If you are also entitled to a Social Security pension, Richard, your CPP may have an impact on it when you apply. This is because of the Windfall Elimination Provision (WEP). This Social Security nuance can cause a reduction in the pension if the pensioner receives a retirement pension for work that they did in another country for which they did not make Social Security contributions.
When you are 65, Richard, you may be able to apply for your Old Age Security (OAS) pension. As a non-resident, the criteria for qualifying for payments while living outside of Canada are:
You should provide a copy of your NR4 tax slip (Statement of Amounts Paid or Credited to Non-Residents of Canada) to your U.S. accountant so that they can report it on your U.S. tax return, Richard. But again, under the United States-Canada Income Tax Convention, you have no Canadian tax to pay on your CPP as a U.S. resident.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Reverse mortgages do the job of freeing up income for house-rich, cash-poor Canadian seniors. But their terms are often...
Many parents loan or gift money to their adult children for real estate purchases. Here are the legal and...
Have an RESP, now what? If you’re wondering how to withdraw that money to pay for school (or not),...
Falling U.S. inflation leads to rate cut certainty, Walmart’s strong quarter, Barrick beats Franco-Nevada for the gold metal, and...
Splitting income with your spouse can help you to pay less tax. Here are some types of retirement income...
Hello and thank you so much for answering my question! I thought there would be a very slim chance that I would receive a response. Richard
My wife is in the same situation as Richard. She is a Canadian citizen, moved to the US 24 years ago, Applied for CPP at the age of 71 and started receiving CPP mid last year. She has also applied for OAS which she is still waiting on. She received her first tax return for a non resident showing there were no tax deductions withheld. The Editor states a standard 25% , Is it hidden? We are really just trying to get an answer to if she does or does not need to file a taxes in Canada. Thanks.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.