The winter months in Canada are notoriously cold and dark, and for some people, retirement dreams are made up of sunny and warmer climates. Retiring abroad is very common, but you must understand how living extensively outside Canada impacts you as a retiree.
For example, if you decide to live outside of Canada and retire abroad, you need to consider how this affects you as a taxpayer. Depending on your residency status, living abroad can impact how you file taxes, how much taxes you pay, and your pension benefits.
Pension Benefits for Retirees Abroad
Generally, if you qualify, you will receive old age security (OAS) and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits when you retire in Canada. If eligible, you will still receive your pension benefits when you retire and live abroad. However, you may have to file your pension income taxes differently.
For example, non-residents living abroad must submit an Old Age Security Return of Income (OASRI). The OASRI helps the Canada Revenue Agency (CRA) to determine if you need to pay recovery tax on your pension benefits.
You may be subject to recovery tax to repay all or part of the OAS pensions you receive if you have a combined high net income from all global sources above the set threshold for the tax year.
If you live in a country that has a tax treaty agreement with Canada, you may not need to submit the Old Age Security Return of Income or pay recovery tax.
If you are a deemed Canadian resident or non-resident for tax purposes, the Canada Revenue Agency requires you to pay taxes on certain income you receive from Canada, even if you are outside the country. Did you know that you can travel outside of Canada for up to 182 days per year and/or 730 days over 5 years? Learn more
For example, if in retirement you withdraw from your registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF), you need to file your taxes and report these amounts. Also, if you receive rental income from real property while retiring abroad, you will need to pay taxes to the CRA.
When determining your income and tax obligations as a retiree abroad, you need to factor in all income from sources such as employment income, business income, pensions, social security, capital gains, rental property, interests, and dividends.
Registered Savings Accounts and other benefits
As a non-resident who has left Canada, you can continue to grow your savings in a tax-free savings account (TFSA). However, your contribution room will not increase, and you cannot continue contributing to the account.
Additionally, you may also become ineligible for certain provincial and territorial benefits. Always confirm the benefits you still have access to when you retire abroad. This will help you plan accordingly.
Retiring abroad may lead to unique tax situations. Ensure you receive pension benefits you are eligible for from sources in Canada and pay your taxes correctly.
You need to note that certain income types require a withholding tax from the source. As such, you may not need to report these types of income when filing your taxes, except if you elect to do so under certain circumstances.
If you have a complex tax situation, it is important to speak with a tax expert to avoid tax penalties and fees and ensure you receive your tax refunds.
Remember to file your taxes before the due date, which is April 30, or June 15 for self-employed individuals.