The RRSP, short for Registered Retirement Savings Plan, is a popular retirement savings plan for Canadians and their spouse or common-law partners. It offers certain tax advantages, such as being tax deductible, meaning it can be used to reduce your tax obligations. Further, any income earned in the RRSP is exempt from taxation as long as it remains within the plan.
However, life can sometimes get in the way, and decisions to move abroad can raise questions about the status and management of these accounts. A common concern is whether you can keep your RRSP if you move out of Canada. This article explores the implications and options for RRSP holders who become non-residents of Canada.
Understanding how RRSPs work
An RRSP is a retirement savings account registered with the Canadian government. Contributions to an RRSP are tax-deductible, and the investments within the account grow tax-free until they are withdrawn. Withdrawals are typically made during retirement when the individual’s tax rate is lower, providing a tax advantage.
Who can open an RRSP?
The RRSSP has no minimum age limit, and users can contribute as long as they earn an employment income and file a tax return. The account holder may continue to contribute up to the age of 71 when they must resort to either of these three options:
- Withdraw the entire savings
- Use the Savings to purchase an annuity or
Convert the RRSP to a Registered Retirement Income Fund (RRIF)
How does a Non-Resident Status affect RRSPs
You can maintain your RRSP as a non-resident. There is no requirement to close the account simply because you have moved abroad. Your investments can remain within the RRSP and continue to grow tax-free until you make withdrawals.
Can you continue to Contribute to an RRSP as a Non-Resident?
While you can keep your RRSP, you must have a Canadian source of employment income to contribute to an RRSP. Once you become a non-resident, you can no longer contribute to your RRSP unless you have earned income in Canada and continue to file a Canadian tax return. The contribution limit would be based on your earned income in Canada, similar to the rules for residents.
Withdrawals and Tax Implications for Non-residents
Withdrawals from your RRSP as a non-resident are subject to Canadian withholding tax. The standard withholding tax rate on RRSP withdrawals for non-residents is 25%, although this rate can be reduced if there is a tax treaty between Canada and your new country of residence- as in the case of the Canada-U.S. Tax Treaty.
Conclusion
Moving out of Canada does not necessitate closing your RRSP. You can maintain your RRSP as a non-resident, allowing your investments to grow tax-free until withdrawal. However, it is crucial to understand the tax implications, contribution restrictions, and reporting requirements associated with your new non-resident status.
In Canada, you must file a departure tax return on the year of leaving and report any RRSP withdrawals annually. Your new country of residence may also have reporting requirements for foreign-held accounts. Consult a tax professional, make informed decisions aligning with your financial goals, and understand your cross-border tax obligations.
