Canada: Taxes On Pension And Rrsp

[rethaired]

Regarding a Canadian Registered Retirement Saving plan (which is non-taxable until withdrawn), if I were to sever all ties from Canada and, if the amount being withdrawn would be less than the basic personal exemption of $9600 in Canada, am I right in assuming that I will not be taxed by Canada, but in the NEW country of residence? Or will I? There is a tax treaty between Canada and Thailand: http://www.fin.gc.ca/treaties/Thailand_e.html, but it is not clear to me what it is going to happen.

It is not clear to me also in this document, whether or not I would be better off taking out some of the interest earned after investing the money resulting from the sale of my property in Canada (less than $250,000) while being a non-resident of Canada, if this amount was not to exceed the basic personal amount stated earlier, or would I be better off to not be selling my property in Canada and rent it out, using the rent as income to be used in Thailand, which I would declare, I suppose, in Canada? Would it be wise to not declare that income? But, if I did, which country would tax me and by how much? Also, if I were to receive a professional pension in the future(which would be, incidentally, higher than $9600/y.) and/or withdraw more money from my RRSP at that time, who would tax me, if any state and by how much?

What would you recommend I do in my situation?

Edited October 6, 2008 by rethaired

[kudroz]

Regarding a Canadian Registered Retirement Saving plan (which is non-taxable until withdrawn), if I were to sever all ties from Canada and, if the amount being withdrawn would be less than the basic personal exemption of $9600 in Canada, am I right in assuming that I will not be taxed by Canada, but in the NEW country of residence?

You will pay 25% (Part XIII tax) at source on the full amount widthrawn. Make sure to notify your RRSP provider that you are a non-resident -- they sometimes ask you for that non-residence letter from the CRA. This money, even if remitted to Thailand, is not taxable here.

It is not clear to me also in this document, whether or not I would be better off taking out some of the interest earned after investing the money resulting from the sale of my property in Canada (less than $250,000) while being a non-resident of Canada

Interest paid to a non-resident of Canada, from January 2008 onwards, is tax free.

Also, if I were to receive a professional pension in the future(which would be, incidentally, higher than $9600/y.) and/or withdraw more money from my RRSP at that time, who would tax me, if any state and by how much?

You will pay 25% (Part XIII tax) at source on the full amount. The personal exemption is only for canadian tax residents.

Edited October 6, 2008 by kudroz

[kudroz]

Interest paid to a non-resident of Canada, from January 2008 onwards, is tax free.

I received a PM about this, so just to clarify and to provide more information to anyone who might be interested; the Paragraph 212( 1 )( b ) of the Part XIII tax was amended and revised for non-resident withholding tax. You are now only subject to 25% tax withholding if you are not dealing at arm's length.

Interest income received from banks or any other third party with whom you are dealing at arm's length, is free of withholding taxes in Canada. Although, if the interest income is remitted to Thailand in the same year it is earned, this income is subject to taxation in Thailand if you are deemed resident of Thailand for tax purposes.

[rethaired]

Interest paid to a non-resident of Canada, from January 2008 onwards, is tax free.

I received a PM about this, so just to clarify and to provide more information to anyone who might be interested; the Paragraph 212( 1 )( b ) of the Part XIII tax was amended and revised for non-resident withholding tax. You are now only subject to 25% tax withholding if you are not dealing at arm's length.

Interest income received from banks or any other third party with whom you are dealing at arm's length, is free of withholding taxes in Canada. Although, if the interest income is remitted to Thailand in the same year it is earned, this income is subject to taxation in Thailand if you are deemed resident of Thailand for tax purposes.

Thank you.

[johnnyk]

1) If possible, collapse your RSP in smaller amounts.

Withholding tax is only 10% on amounts less than $5000. You can get around this by collapsing $5K on several different, even consecutive days. If you want to do it I would also suggest collapsing near the end of the year as ny tax withheld will come back to you quicker if you are getting a refund.

My preferred option would be:

2) At this time I wouldn't sell my CDN property, its a buyers market. Rent it out, people always need a place to live and so will you if you come back to Canada. Whatever money you get in rent you can declare as income in Canada and reduce it via personal exemption plus expenses/repairs incurred in "maintaining" your rental property. You can also deduct property taxes from the income to further beat down your income tax. If you have a mortgage, deduct only the interest portion otherwise you will pay capital gains if you sell the house.

[rethaired]

Thanks, Johnny K, I thinki that the latter option might be best. If one rents a property and declares the income, etc. isn't the property going to be hit with cappital gains if sold.

Edited October 18, 2008 by rethaired

[rethaired]

(Disregard the last post!)

Thanks, Johnny K!

I think that the latter option might be best, although, if one rents a property and declares the income, etc. isn't the property going to be hit with capital gains if sold?

Of course, when one speaks about avoiding taxes, one also has to factor in the taxes that were not paid when putting money into a RRSP: in my case, about 15,000 CAD + the 50,000 CAD (I am allowed to do this as I have not contributed yet) put in the RRSP growing at 4% or more.

I think I need to talk to an accountant for him or her to crush those numbers and tell me which is the most effective way to go.

Edited October 18, 2008 by rethaired

[rethaired]

After talking with an accountant, I found out that, yes, rent received is not a bad idea, but one has to factor in management fees and, according to him, a hefty tax when a non-resident sells the property (and at this rate, who knows where prices will be at)! I CANNOT recall the tax rate, but this made the idea of renting a property in Canada not a good idea, especially considering the difficulty to garantee a rental income (if your renters leave, who are you going to get, when, for how long, and what kinds of fees the management companies is going to charge you?), prices are relatively high, and what about the security of the investment. What will the condo look like after it has been rented out? Cat or dog damage? What is the insurance going to cost you if nothing worong happens? What will it cost you if something bad happens? And suppose something bad happens, would it not mean that I would have to get there to talk with the insurance? It seems to me that the gains (if any, compare to other forms of investment income) seem to be small for the risk.

HOwever, if I understand Kudroz well, it is better for me to stick my money in long-term deposits like GICs (or other non-redeemable products) at 4% + for 3 to 5 years (the best rates I seem to find here), since all interests will not be taxed, but might be in Thailand (if the amount is high enough), which I have no problem with, since I am "using" their country's infrastructrure! I might play the stock market when things have been a bit more regulated and stocks go up, not down!

If interest (outside an RRSP) is not taxed in Canada, is the interest inside an RRSP taxed? Is the full amount taxed or just the capital that was put into it? I understand the idea of being taxed on income that should have been taxed in the first place. I have no problem with paying taxes (like everyone else, for service rendered), but this seems to be contradictory.

An important point Kudroz made was "if remitted to Thailand in the same year". So, if not remitted in the same year, it would NOT be taxable in Canada and Thailand?

JohnnyK makes an interesting point with regards to RRSPs, when pulling out a smaller amounts, but I have not been able to read anything on the subject. Can Johnnyk (or anyone for that matter) provide an official source for this situation? Thanks.

Edited November 11, 2008 by rethaired

[johnnyk]

Re: cashing RSPs in smaller amounts... my source is me. I've done it many times, most recently a year ago.

With regard to renting the house - if you maintain CDN residence you are allowed to rent your house, just declare the income but as I said beat it down with expenses.

Renting isn't free money but you can minimize risk: leave nothing valuable in the house and take a serious security deposit to filter out marginals. If you rent through an agency I believe they are obliged to withhold taxes plus they charge quite hefty fees, maybe 20%. Get a neighbour to keep an eye open for you so little problems don't become big ones. Buy an open return air ticket so you can come back quickly if there's a problem.

As long as it is your principal residence there are no capital gain taxes.

Why sell it now anyway? The market is in the toilet.

So why not keep perm res, don't become a perm res of anywhere else and you are fine.

[rethaired]

Re: cashing RSPs in smaller amounts... my source is me. I've done it many times, most recently a year ago.

With regard to renting the house - if you maintain CDN residence you are allowed to rent your house, just declare the income but as I said beat it down with expenses.

Renting isn't free money but you can minimize risk: leave nothing valuable in the house and take a serious security deposit to filter out marginals. If you rent through an agency I believe they are obliged to withhold taxes plus they charge quite hefty fees, maybe 20%. Get a neighbour to keep an eye open for you so little problems don't become big ones. Buy an open return air ticket so you can come back quickly if there's a problem.

As long as it is your principal residence there are no capital gain taxes.

Why sell it now anyway? The market is in the toilet.

So why not keep perm res, don't become a perm res of anywhere else and you are fine.

Thanks, Johnny!

Your source is you! Hope the taxman accepts that!

I have reviewed the RRSP deal and it does not make sense to me! I will be taxed at 22% on he top part of my income this year, yet, when I will withdraw it from Thailand, I will be taxed on it at 25%. 3% loss does not make sense to me! I prefer to invest this money outside a registered vehicle, even though I am going to be taxed on it! The good part is that I will work part-time next year and for the next 3 years, making my income quite low and in effect reducing the tax hit on the interest generated!

I am a bit confused! Are you saying that even though you rent a residence, it is deemed still your principal residence, which means you won't be hit with capital gains! I prefer to sell my condo now before it goes from the toilet bowl to ... down the drain, if you get the .... drift! Beside, the strata fees and a vacant condo (which I cannot rent --amazing but true) for 6 months do not make sense! I understand your point of view of renting it, but 200,000 CAD (invested at 4.5%) can provide about the same income (if not more) than if I were to rent a condo and get the 1000 CAD/month income, especially if the interest is not taxed, in which case it seems a better investment, assuming that the condo's price does not go higher (which it did, but there is no garantee it will either)! Beside, if I rent a place in Canada, I will have to rent in LOS or buy in LOS. The problem with renting is that even though it is cheap now, there is no garantee that prices will not go to the roof in LOS. At the rate the US print's money, there is a high likelyhood of inflation (at least in the N.- A.). Who knows what will it be like in LOS, but I assume les so. In any case, assuming 30 years of life after 50, buying is the best deal, I think, considering the price of houses/condos here. And I don't think it is realistic to think that the Thais will kick the foreigners out. Tourism and expats money are not exactly pocket change (and so would be the repercussions of unemployement should they kick us out). I think putting money and having someone else make money with it (with the leverage the banks have) is much more problem-free! But, as I said earlier, there are many exceptions, but I am a pretty conservative guy (and considering how bad the stock market fiascos of the 2000 and the 2008 have been, I am not doing too badly, I think!)

Edited November 11, 2008 by rethaired

[johnnyk]

Re: cashing RSPs in smaller amounts... my source is me. I've done it many times, most recently a year ago.

With regard to renting the house - if you maintain CDN residence you are allowed to rent your house, just declare the income but as I said beat it down with expenses.

Renting isn't free money but you can minimize risk: leave nothing valuable in the house and take a serious security deposit to filter out marginals. If you rent through an agency I believe they are obliged to withhold taxes plus they charge quite hefty fees, maybe 20%. Get a neighbour to keep an eye open for you so little problems don't become big ones. Buy an open return air ticket so you can come back quickly if there's a problem.

As long as it is your principal residence there are no capital gain taxes.

Why sell it now anyway? The market is in the toilet.

So why not keep perm res, don't become a perm res of anywhere else and you are fine.

Thanks, Johnny!

Your source is you! Hope the taxman accepts that!

He does, its his rule not mine. Go to the gov. canada website and check for yourself or ask your RSP advisor. If you have more income during the year then you will pay tax of course but to access RSP money immediately at the minimum withholding rate this is the way.

http://www.rbcroyalbank.com/products/rrsp/rrsp-rules.html

I have reviewed the RRSP deal and it does not make sense to me! I will be taxed at 22% on he top part of my income this year, yet, when I will withdraw it from Thailand, I will be taxed on it at 25%. 3% loss does not make sense to me! I prefer to invest this money outside a registered vehicle, even though I am going to be taxed on it! The good part is that I will work part-time next year and for the next 3 years, making my income quite low and in effect reducing the tax hit on the interest generated!

I am a bit confused! Are you saying that even though you rent a residence, it is deemed still your principal residence, which means you won't be hit with capital gains! I prefer to sell my condo now before it goes from the toilet bowl to ... down the drain, if you get the .... drift! Beside, the strata fees and a vacant condo (which I cannot rent --amazing but true)

But you didn't say you could not rent it out. This changes all your numbers then.

for 6 months do not make sense! I understand your point of view of renting it, but 200,000 CAD (invested at 4.5%) can provide about the same income (if not more) than if I were to rent a condo and get the 1000 CAD/month income, especially if the interest is not taxed,

The interest if paid in Canada will be subject to tax depending on how much other yearly income you have.

in which case it seems a better investment, assuming that the condo's price does not go higher (which it did, but there is no garantee it will either)! Beside, if I rent a place in Canada, I will have to rent in LOS or buy in LOS. The problem with renting is that even though it is cheap now, there is no garantee that prices will not go to the roof in LOS.

Rents don't usually go nuts in Thailand and there are many rentals available so I would not worry too much about that.

At the rate the US print's money, there is a high likelyhood of inflation (at least in the N.- A.). Who knows what will it be like in LOS, but I assume les so. In any case, assuming 30 years of life after 50, buying is the best deal, I think, considering the price of houses/condos here. And I don't think it is realistic to think that the Thais will kick the foreigners out. Tourism and expats money are not exactly pocket change (and so would be the repercussions of unemployement should they kick us out). I think putting money and having someone else make money with it (with the leverage the banks have) is much more problem-free! But, as I said earlier, there are many exceptions, but I am a pretty conservative guy (and considering how bad the stock market fiascos of the 2000 and the 2008 have been, I am not doing too badly, I think!)

[rethaired]

Re: cashing RSPs in smaller amounts... my source is me. I've done it many times, most recently a year ago.

With regard to renting the house - if you maintain CDN residence you are allowed to rent your house, just declare the income but as I said beat it down with expenses.

Renting isn't free money but you can minimize risk: leave nothing valuable in the house and take a serious security deposit to filter out marginals. If you rent through an agency I believe they are obliged to withhold taxes plus they charge quite hefty fees, maybe 20%. Get a neighbour to keep an eye open for you so little problems don't become big ones. Buy an open return air ticket so you can come back quickly if there's a problem.

As long as it is your principal residence there are no capital gain taxes.

Why sell it now anyway? The market is in the toilet.

So why not keep perm res, don't become a perm res of anywhere else and you are fine.

Thanks, Johnny!

Your source is you! Hope the taxman accepts that!

He does, its his rule not mine. Go to the gov. canada website and check for yourself or ask your RSP advisor. If you have more income during the year then you will pay tax of course but to access RSP money immediately at the minimum withholding rate this is the way.

http://www.rbcroyalbank.com/products/rrsp/rrsp-rules.html

I have reviewed the RRSP deal and it does not make sense to me! I will be taxed at 22% on he top part of my income this year, yet, when I will withdraw it from Thailand, I will be taxed on it at 25%. 3% loss does not make sense to me! I prefer to invest this money outside a registered vehicle, even though I am going to be taxed on it! The good part is that I will work part-time next year and for the next 3 years, making my income quite low and in effect reducing the tax hit on the interest generated!

I am a bit confused! Are you saying that even though you rent a residence, it is deemed still your principal residence, which means you won't be hit with capital gains! I prefer to sell my condo now before it goes from the toilet bowl to ... down the drain, if you get the .... drift! Beside, the strata fees and a vacant condo (which I cannot rent --amazing but true)

But you didn't say you could not rent it out. This changes all your numbers then.

True! But, I was going to sell and buy, if renting was the best option.

for 6 months do not make sense! I understand your point of view of renting it, but 200,000 CAD (invested at 4.5%) can provide about the same income (if not more) than if I were to rent a condo and get the 1000 CAD/month income, especially if the interest is not taxed,

The interest if paid in Canada will be subject to tax depending on how much other yearly income you have.

But Kudroz stated that the new 2008 law specifies that interest in Canada from a bank account is NOT taxed, if one is deemed to be a non-resident.

in which case it seems a better investment, assuming that the condo's price does not go higher (which it did, but there is no garantee it will either)! Beside, if I rent a place in Canada, I will have to rent in LOS or buy in LOS. The problem with renting is that even though it is cheap now, there is no garantee that prices will not go to the roof in LOS.

Rents don't usually go nuts in Thailand and there are many rentals available so I would not worry too much about that.

I agree that rental prices should remain relatively stable, but less so on condos since they are the prefered and safest way to buy a home. Baby-boomers are going to look for greener pastures , especially the ones who lost a lot of dough recently in retirement income. They might be looking for cheaper pastures to make their depreciated retirement nest-egg go further. But, then not all of them want to retire in LOS since they will be away from family and their comfort zone, of course. Hard to say how things are going to be playing out at the end.

At the rate the US print's money, there is a high likelyhood of inflation (at least in the N.- A.). Who knows what will it be like in LOS, but I assume les so. In any case, assuming 30 years of life after 50, buying is the best deal, I think, considering the price of houses/condos here. And I don't think it is realistic to think that the Thais will kick the foreigners out. Tourism and expats money are not exactly pocket change (and so would be the repercussions of unemployement should they kick us out). I think putting money and having someone else make money with it (with the leverage the banks have) is much more problem-free! But, as I said earlier, there are many exceptions, but I am a pretty conservative guy (and considering how bad the stock market fiascos of the 2000 and the 2008 have been, I am not doing too badly, I think!)

Edited November 16, 2008 by rethaired