Watch: What Happens to Your RRSP if You Leave Canada Forever? | Back to India
Complete guide on RRSP options when leaving Canada for India - keep it, cash out, or convert to RRIF. Tax implications, treaty benefits, and smart strategies.
The full write-up, with the numbers and the links.
What this conversation covers
- Key Takeaways
- RRSP Fundamentals for Non-Residents
- Taxation: Canada & India
- Option 1: Keep RRSP Open
- Option 2: Cash Out Before Leaving Canada
- Option 3: Convert to RRIF
- Canada-India Tax Treaty Benefits
- Step 1: Confirm Your Canada Departure Date
- Step 2: Separate RRSP, RRIF, TFSA, and Non-Registered Assets
- Step 3: Compare Keep, Withdraw, and Convert Scenarios
- Step 4: Time RRSP Withdrawals Around RNOR Status
- Step 5: Get Written Confirmation Before Withdrawing
Transcript
Auto-generated captions, lightly cleaned
0:02 Are you planning to leave Canada and settle in India for good? So here is a big question. What happens to your RRSP accounts, registered retirement savings plan account? Do you cash them out? Do you keep them or do you convert them? Also, what happens to taxes in India and in Canada? Hi everyone, this is Ainash here and at DI Return, we make your journey from Canada to India smooth and financially smart. In today's video, we will cover what happens to RSP accounts when you leave Canada and how are the tax implications from both Canada's side as well as India's side and finally what are your options and how should you plan which option would be appropriate for you. Please stay till the end of the video. I'll be sharing an action plan that you can use when you are planning your move.
1:06 First, let's get the fundamentals clear. Once you become a non-resident of Canada, what happens to your RRSP accounts? First, you can keep RSB accounts. The investments in these accounts can grow tax-free. Second, contributions to RRSP accounts as a non-resident. Here is something most people get it wrong. You can still contribute to RRSP accounts as a non-resident but there are two different ways to do this. First using existing room any unused contribution room that you have built up while you are working in Canada can be used once you become a non-resident.
1:55 Second Canadian income. If you earn Canadian income like rental income, business income, consulting fees, you can build new contribution room. What you can't do is the employment income that you earned in India won't build new RSP contribution room. Third, no deemed disposition. This is great news. Unlike other investments, RRSP Investments isn't subject to exit tax when leaving Canada. And finally, tax withholding, which is 25%. Here is the kicker. When you eventually withdraw funds from RRSP accounts, Canada automatically withholds 25% of that withdrawal amount. Please note, this is something not many people realize. India may also tax RR RSP withdrawals as a foreign income. We will
2:56 Talk about how to minimize these double taxation. Before we get in, please subscribe so that you don't miss any informative content in the future. Now, let's talk about the taxation. Once you become a non-resident, Canada will tax your withdrawals from RRSP accounts at 25% withholding tax. For example, if you withdraw $10,000 from your RRSP account, bank will withhold $2,500 for CRA. This is something most people don't know. You don't have to file Canadian income tax return for your RRSP withdrawals as a non-resident.
Read the full transcript (8 more sections)
3:46 The 25% withholding is your final tax to Canada. It is not a prepayment. It is clean break for the money that you withdraw. There is an exception. You can still file the Canadian tax return if you think you have overpaid and want a refund, but it's completely optional. If you have rental properties in Canada and you have unused RRSP contribution room from your working years, you might want to consider contributing to RRSP plans to reduce your Canadian taxable income. This is completely up to you. This is totally allowed as a So, what are your options on what to do with your RRSP accounts when leaving Canada? First, do nothing. You can leave your RRSP accounts, let the investment grow tax-free, and withdraw it later.
4:49 Second, withdraw the funds before leaving Canada. Third, convert it into a RR if registered retirement income fund and have regular payments. Let's dive into each of these option and see the pros and cons. Let's start with option one. Keep your RSP accounts open and withdraw it when you actually need the money. There are pros and cons. Pros, you can let the money grow tax-free in the account. Second, you have the flexibility on when you want to withdraw. Third, the withdrawal timing can be optimized during your low income years in India.
5:40 Cons, there is a 25% withholding tax when you withdraw this. There is a way to reduce it. Keep watching. Second, potentially higher taxes because of dual taxation in both countries. And finally, the currency exchange risk over time. The key thing here is the timing and the tax planning in both countries. Option two, cash out completely while you are a Canadian resident. pros, you will be paying marginal tax versus a 25% withholding tax. Second, there is no currency exchange risk with this option.
6:28 Third, it's a clean break. No more Canadian tax obligations in the future. And finally, you can potentially time when you have a low income year in Canada. Cons, you are missing out tax deferred growth in these plans. Second, you might push into a high income tax bracket because of this withdrawal. And finally, once it's out, it is completely out and there is nothing to go back. So the key question here is will your marginal tax be higher or lower than the 25% tax and any additional tax that you would pay to India? Option three is interesting. You convert your RRSP into registered retirement income fund before you leave. Here is how it works. You're not not technically withdrawing the money. You are receiving pension funds. This can potentially
7:30 Reduce your tax withholding from 25% to 15% under the tax treaty rules. and you can get regular income stream. And finally, this is much more tax efficient than a lumpsum withdrawal. And the requirements, most of the providers required that you are 55 plus to do this conversion. Second, you need a minimum annual withdrawal every year. And then finally, you can't contribute anymore. Under the Canada India tax treaty law, the pension payments qualify for a reduced tax withholding. This could save you 10% off the bat. Instead of 25%, the tax withholding is only 15%.
8:21 Now, here is where it gets interesting. The Canada India tax treaty can significantly impact your decision. Let's look at the key tax treaty benefits. The pension funds can may qualify for 15% tax withholding instead of 25%. Second, you can claim foreign tax credit while filing Indian income tax. You can structure so that your overall tax burden is minimized. And finally, there are three tax residency statuses in India. and non-resident RNR or which is resident but not ordinary resident and finally resident status in India there is no income tax that you have to pay on the foreign income during RNR probably you can time your withdrawals during RNR so that you would pay only 25% withholding in Canada and nothing in India so you
9:21 Need to take all these into consideration and plan your decision on what you want to do and also time the decision so that you are optimizing from a tax perspective. All right, this family here is your action plan before the moon. Calculate current Canadian marginal tax rate. You need to understand RNR status and for how long you would qualify for. Estimate your Indian tax burden post move. Check the unused RRSP contribution room. You might be able to use it even as a non-resident. Consider your timeline on when you need the funds. If you are having a Canadian rental properties, explore the RSP contribution strategies.
10:16 Explore the investment options in India. And finally consult a crossber tax expert who is specializes both in Canada as well as Indian tax laws so that you can make the right choice for your specific scenario. If you have liked this video, please like and subscribe and share with others who can benefit from the content. Drop a comment in the video below on which option that you have chosen for your RSB accounts.
