In Canada, a Registered Retirement Savings Plan (“RRSP”) is a plan established to assist Canadians with saving for retirement. Contributions to the plan are generally tax-deductible in the same year and any income earned within the plan is tax-exempt. The Canadian taxation occurs when withdrawals are made from the plan.
To prevent an indefinite tax-deferral on income earned within the RRSP, the plan must be collapsed by the age of 71 – generally either as a full withdrawal or conversion into a Registered Retirement Income Fund (“RRIF”). Once the RRIF is established, an annual minimum withdrawal amount must be paid out from the plan.
With many Canadians moving to Australia, there are Canadian tax implications to consider with holding an RRSP or RRIF as an Australian tax resident, including the following:
- You are permitted to continue holding your RRSP or RRIF even as an Australian resident. However, you should notify your Canadian financial institution about your change in residency status as this will impact the Canadian taxation moving forward.
- The Canadian domestic tax rules provide a 25% Canadian withholding tax on withdrawn RRSP amounts for non-Canadians. However, the Canada-Australia Tax Treaty reduces this Canadian withholding tax to only 15% for Australian residents.
- If the only asset you hold in Canada is your RRSP or RRIF, there will be no annual Canadian tax filings required – the Canadian withholding tax from the financial institution essentially represents your final Canadian tax liability.
- In certain situations, an Australian resident individual may elect to file a Canadian tax income return under section 217 of the Income Tax Act (Canada) to report Canadian-sourced pensions or other benefits. Where the individual’s income level is relatively low and there are tax credits available to be claimed, this can often lead to a refund of some or all of the previously withheld taxes on the pension withdrawal.
- To assist with ongoing cash flow, an application to reduce RRSP and RRIF withholding taxes can be filed with the Canada Revenue Agency where the filing of a section 217 return is expected to be more beneficial for the individual.
- Generally, where an annuitant of an RRSP passes away, the fair market value of the plan is subject to Canadian income taxes in the same year. Exceptions to this immediate taxation can apply, including where a spouse, common-law partner, or financially dependent child is named in the RRSP contract as the beneficiary of the RRSP.