What Happens to Your RRSP When You Leave Canada?
One of the most common questions we receive from emigrants is what happens to their RRSP after leaving Canada.
Moving abroad does not mean you need to collapse your registered retirement savings plan (RRSP). In fact, many Canadians who emigrate keep their RRSPs in place for decades after leaving the country. Your RRSP remains tax-deferred in Canada, and there is generally no tax simply because you become a non-resident.
That said, the tax treatment of future withdrawals can change significantly, both in Canada and in your new country of residence. Understanding those rules before you leave can help you avoid surprises and potentially reduce your lifetime tax bill.
Can You Keep Your RRSP After Leaving Canada?
When you become a non-resident of Canada, your RRSP can generally remain open indefinitely. The account does not need to be collapsed or withdrawn simply because you have moved.
Your investments can continue to grow inside the RRSP, and you are not taxed annually in Canada on interest, dividends, or capital gains earned within the account.
Eventually, however, the RRSP must still be converted to a registered retirement income fund (RRIF) or annuity by the end of the year you turn 71, just as it would if you remained in Canada.
Can You Continue Contributing?
RRSP contribution room is based primarily on earned income reported on a Canadian tax return. Once you leave Canada and stop earning Canadian employment or self-employment income, you generally stop generating new RRSP room.
Some emigrants still have unused contribution room from prior years. While it may be possible to make contributions after departure, the deduction may provide limited value if you are no longer taxable in Canada.
For that reason, post-departure RRSP contributions should be considered carefully.
How Are RRSP Withdrawals Taxed Once You're a Non-Resident?
Canada generally imposes non-resident withholding tax on RRSP and RRIF withdrawals. The withholding rate is impacted by:
- Whether the payment is a lump-sum withdrawal or periodic pension income
- The tax treaty between Canada and your new country of residence
Many Canadian tax treaties reduce the Canadian withholding tax that would otherwise apply on periodic payments like you would take from a RRIF in retirement. As a result, a retiree living in one country may pay different tax than a retiree living somewhere else, even when withdrawing the same amount from an RRSP or RRIF.
Can a Section 217 Tax Return Reduce Your Tax?
Canadian residents are generally taxed on RRSP and RRIF withdrawals using graduated tax rates. Non-residents, on the other hand, are often subject to withholding tax at source.
Depending on your circumstances, you may be able to elect under Section 217 of the Income Tax Act and file a Canadian tax return instead. For some non-residents, this can lead to a lower overall Canadian tax bill and a refund of some of the tax withheld from RRSP or RRIF withdrawals. This can be particularly beneficial if your country of residence taxes RRSP or RRIF withdrawals at a lower rate than the Canadian withholding tax, or does not tax them at all.
Whether a Section 217 election makes sense depends on factors such as:
- The amount of Canadian income received
- The type of income received
- Available deductions and tax credits
- Your country of residence
- Any applicable tax treaty
The rules can be nuanced, and the potential savings can vary significantly from one taxpayer to another.
Need Help With Non-Resident Tax Filing?
Objective Tax & Accounting assists Canadian non-residents with Canadian tax compliance, including Section 217 returns and other non-resident tax returns.
Will Your New Country Tax the Withdrawal Too?
This is often the most important question. Many countries tax their residents on worldwide income. As a result, an RRSP or RRIF withdrawal may be taxable not only in Canada but also in your new country of residence.
Whether that creates double taxation depends on local tax law and the applicable tax treaty. In some countries, the treatment is relatively straightforward. In others, the rules are less clear or less favourable.
This is why cross-border tax planning is particularly important before taking large withdrawals.
A Practical Example
Consider a Canadian who retires to another country after building most of their retirement savings in Canada. Although they may no longer file a regular Canadian tax return, their RRSP and RRIF withdrawals are still subject to Canadian withholding tax.
At the same time, their new country of residence may also have rules for taxing foreign retirement income. The overall tax result is based on the interaction between Canadian withholding tax rates, local tax laws, and any applicable tax treaty between the countries.
The key point is that an RRSP does not disappear when you leave Canada. For many Canadians living abroad, it remains one of their largest retirement assets, which means future withdrawals often require both Canadian and foreign tax planning.
Should You Withdraw Your RRSP Before Leaving?
Many people assume they should cash out their RRSP before departure. In most cases, that is not an ideal solution. A large RRSP withdrawal while still resident in Canada can create a significant immediate tax bill. It may also push you into higher tax brackets and accelerate taxes that could otherwise be deferred for years.
There are situations where pre-departure withdrawals make sense, but they tend to be the exception rather than the rule. The decision should be based on your expected residency status, retirement income needs, age, tax treaty considerations, other assets, and long-term retirement goals.
Planning Before You Leave Can Save Significant Tax
The decision to keep, withdraw, or convert an RRSP is often part of a broader retirement and tax planning strategy. For example, someone moving abroad at age 45 may have very different priorities than a retiree leaving Canada at age 70. Timing withdrawals, coordinating government benefits like Canada Pension Plan (CPP) and Old Age Security (OAS), considering tax treaty implications, and planning future cash flow can all affect the outcome.
The best approach is often determined years before the first RRSP withdrawal occurs.
Moving Abroad or Retiring Outside Canada?
Objective Financial Partners provides advice-only financial planning for Canadians living abroad and those preparing to emigrate. We help clients evaluate RRSP, RRIF, pension, CPP, OAS, tax, and retirement income decisions before and after departure.
The Bottom Line
Leaving Canada does not mean you need to cash out your RRSP. For many emigrants, keeping an RRSP is the most tax-efficient approach. The account continues to enjoy tax deferred growth in Canada, and future withdrawals can often be managed strategically.
For Canadians who move abroad, it is important to understand how their RRSP withdrawals will be taxed years or even decades later when they start relying on those savings for retirement income.
Need Help With Canadian Tax or Retirement Planning After Leaving Canada?
Objective Tax & Accounting assists non-residents with Canadian tax compliance, including non-resident tax filings and Section 217 elections.
Objective Financial Partners provides advice-only retirement and financial planning for Canadians living abroad or preparing to move overseas.
This article is intended for educational purposes only and does not constitute personalized advice. The strategies and information discussed may not be suitable for your individual situation or may not be up-to-date and current. Please seek guidance from a licensed professional for advice specific to your circumstances.
