Taxation of Non-Residents on Canadian Pensions and Benefits

When you’re living outside of Canada as a non-resident, you may still have Canadian income sources, such as pensions, retirement benefits, and other government-related payments. A common question among non-residents is how these Canadian pensions and benefits are taxed. Understanding how non resident tax applies to pensions and benefits is crucial to ensure you comply with Canadian tax laws and avoid any unexpected tax bills.

In this blog, we’ll break down the taxation of Canadian pensions and benefits for non-residents. We’ll discuss how non-resident tax affects your retirement income, the different types of pensions and benefits you may be receiving, and how to manage your tax obligations. Let’s dive in!

What is Non-Resident Tax?

Before we delve into the taxation of pensions and benefits, it’s essential to understand what non-resident tax means. A non-resident is someone who does not live in Canada for tax purposes, even though they may still receive Canadian income, such as pensions, rental income, or business profits. Non-residents are still required to file taxes on their Canadian income, and this includes pensions and benefits.

In Canada, non-resident tax refers to the tax that the Canadian government imposes on income earned by individuals who are not residents of the country. Non-residents are generally taxed on Canadian-sourced income, and the tax rates may differ from those applied to residents.

Now that we understand non-resident tax, let’s explore how it applies to Canadian pensions and benefits.

Types of Canadian Pensions and Benefits for Non-Residents

There are several types of pensions and benefits that non-residents may receive from the Canadian government. The most common ones include:

1. Canada Pension Plan (CPP)

The Canada Pension Plan (CPP) is a government-run program that provides retirement, disability, and survivor benefits to eligible individuals who have worked in Canada. If you contributed to CPP while living and working in Canada, you may be entitled to receive CPP benefits even after you move abroad.

2. Old Age Security (OAS)

Old Age Security (OAS) is another government program that provides monthly payments to Canadians aged 65 and older who meet the eligibility requirements. Non-residents can also receive OAS benefits if they have lived in Canada for a certain number of years.

3. Guaranteed Income Supplement (GIS)

The Guaranteed Income Supplement (GIS) is a supplementary payment made to OAS recipients who have low income. This benefit is also available to non-residents if they meet the eligibility criteria.

4. Veterans’ Benefits

Veterans who served in the Canadian Armed Forces may be eligible for various pensions and benefits, including disability pensions and survivor benefits. Non-residents who are veterans may continue to receive these benefits even after leaving Canada.

5. Employment Insurance (EI)

Although most Canadians receive Employment Insurance (EI) while living and working in Canada, there are cases where non-residents may continue to receive benefits if they were previously eligible before moving abroad.

Each of these programs comes with specific eligibility requirements and different tax treatments for non-residents. Let’s break down how non-resident tax applies to each of these benefits.

How Non-Resident Tax Applies to Canadian Pensions and Benefits

The non-resident tax rates on Canadian pensions and benefits depend on the type of income you’re receiving and whether or not you are covered by a tax treaty between Canada and your country of residence.

1. Canada Pension Plan (CPP) and Non-Resident Tax

If you're a non-resident receiving Canada Pension Plan (CPP) benefits, you will generally be subject to non-resident tax at a rate of 25% on the amount you receive. This withholding tax is deducted at the source, meaning that it is taken directly from your monthly CPP payments before they are sent to you.

However, the non-resident tax rate may be reduced if your country of residence has a tax treaty with Canada. Many countries, including the United States and the United Kingdom, have agreements with Canada that can reduce the withholding tax rate on CPP benefits to as low as 15% or even lower. It’s essential to check if your country of residence has a tax treaty with Canada and to file the appropriate forms to apply for the reduced tax rate.

2. Old Age Security (OAS) and Non-Resident Tax

Old Age Security (OAS) is another benefit that is subject to non-resident tax. Non-residents receiving OAS are typically subject to a withholding tax of 25% on the payments they receive from Canada. This rate is applied to the OAS benefits before they are issued to you.

Similar to CPP, the non-resident tax rate on OAS can be reduced if your country has a tax treaty with Canada. For instance, if you live in the United States, the tax treaty may reduce the withholding tax on OAS benefits to 15%.

Additionally, if you have lived in Canada for at least 20 years after turning 18, you may be eligible to receive the full OAS benefits as a non-resident. However, the amount of OAS you receive may be subject to a reduction based on your income level, and the reduced rate will still be subject to non-resident tax.

3. Guaranteed Income Supplement (GIS) and Non-Resident Tax

The Guaranteed Income Supplement (GIS) is generally available only to Canadian residents who are receiving OAS benefits. However, non-residents who previously lived in Canada and were receiving GIS may continue to receive these payments. The GIS, like OAS, is subject to a 25% withholding tax for non-residents.

Since GIS is intended to provide income support to low-income seniors, it is important to understand that non-residents who qualify for GIS will have their benefits reduced by non-resident tax. If you are receiving GIS as a non-resident, you should contact a tax professional to ensure that you are receiving the correct amount of benefits.

4. Veterans’ Benefits and Non-Resident Tax

Veterans’ pensions and benefits are generally not subject to non-resident tax. However, this can vary depending on the specific type of benefit you are receiving and your country of residence. For example, if you are receiving a disability pension from Veterans Affairs Canada, this may be exempt from non-resident tax.

It’s important to consult with a personal tax accountant to understand the exact tax treatment of your veterans’ benefits as a non-resident.

5. Employment Insurance (EI) and Non-Resident Tax

If you were receiving Employment Insurance (EI) benefits before moving abroad, you might still be eligible for certain payments under specific circumstances. However, non-resident tax may apply to the payments you receive, depending on the tax treaty between Canada and your country of residence.

Non-residents receiving EI benefits are generally subject to 25% withholding tax, but the rate may be reduced under a tax treaty.

How to File Taxes as a Non-Resident with Canadian Pensions and Benefits

If you are a non-resident receiving Canadian pensions and benefits, you will need to file a non-resident tax return to report your income. This return ensures that you are paying the correct amount of non-resident tax on your Canadian income.

Steps to File Your Non-Resident Tax Return:

1. Determine Your Residency Status: Your residency status will impact how much tax you owe. If you’re a non-resident, you’ll need to file a tax return to report your income from Canada.

2. Calculate Your Income: Make sure to report all income from Canadian sources, including pensions and benefits. Your non-resident tax will be based on the amount of income you receive.

3. Claim Tax Treaties: If your country has a tax treaty with Canada, you may be able to claim a reduced tax rate. You will need to provide the appropriate documentation, such as Form NR301, to claim the treaty benefits.

4. File Your Tax Return: Submit your non-resident tax return to the Canada Revenue Agency (CRA) by the required deadline. Be sure to include all forms, including your Canadian pension and benefits slips.

   
   

Navigating non-resident tax on Canadian pensions and benefits can be complicated, but understanding the rules and seeking help when necessary can make the process easier. Whether you’re receiving CPP, OAS, GIS, or other benefits, a personal tax accountant can help you manage your Canadian tax obligations and ensure that you’re paying the correct amount of tax.

Non-residents who are receiving Canadian pensions and benefits should be aware of the withholding tax rates and take advantage of any tax treaties that may reduce their tax liabilities. With the right knowledge and support, you can ensure that your Canadian tax filing is accurate and that you are maximizing your benefits while minimizing your tax obligations.

If you have questions or need help with your non-resident tax filing, consider reaching out to a professional who specializes in international taxation. Their expertise can save you time, money, and unnecessary stress.