If you’re a Canadian expat, your RRSP (Registered Retirement Savings Plan) and TFSA (Tax-Free Savings Account) don’t disappear the moment you step on a plane, but the rules for using them change dramatically.
Misunderstanding these rules can lead to unexpected taxes, penalties, or even lost contribution room. At Accounting Montreal, we guide Canadians abroad through the dos and don’ts of managing RRSPs and TFSAs while living outside Canada.
RRSPs for Canadian Expats
1. Keeping Your RRSP While Abroad
You can keep your RRSP after becoming a non-resident. It will continue to grow tax-deferred until you make withdrawals.
2. Contributions as a Non-Resident
- You can contribute if you have Canadian-earned income and available contribution room.
- Contributions while a non-resident generally won’t reduce taxable income in your new country unless that country’s tax treaty recognizes RRSP deductions.
3. Withdrawals While Abroad
- Subject to non-resident withholding tax (usually 25%, or less if a treaty applies).
- Withdrawals must also be reported in your country of residence.
Tip: Timing withdrawals strategically can reduce your overall tax burden.
TFSAs for Canadian Expats
1. Contributions After Leaving Canada
- Once you become a non-resident, stop contributing to your TFSA.
- Contributions made as a non-resident are subject to a 1% per-month penalty until removed.
2. Growth Inside the TFSA
- Remains tax-free in Canada.
- However, your new country may tax the income and gains inside your TFSA since it’s not recognized internationally as a tax-free account.
3. Withdrawals While Abroad
- No Canadian tax on withdrawals.
- Again, your new country may tax the amount you withdraw.
Planning Considerations Before Moving Abroad
- Max out RRSP or TFSA before leaving if it aligns with your tax strategy.
- Check your destination country’s treatment of these accounts under its tax laws.
- Coordinate withdrawals with tax treaty benefits to reduce withholding tax.
Reference: CRA – RRSPs and non-residents | CRA – TFSA rules for non-residents
Example: RRSP and TFSA in Action
Daniel, a Montreal teacher working in Australia, keeps his RRSP intact but stops TFSA contributions. The Canada–Australia tax treaty allows him to reduce withholding tax on RRSP withdrawals when he needs extra funds. His TFSA remains tax-free in Canada, but Australia taxes the investment gains annually.
Why Professional Advice Matters
RRSP and TFSA rules are straightforward in Canada, but can be complicated by foreign tax laws. Without proper coordination, you could face double taxation or unnecessary penalties.
At Accounting Montreal, we:
- Review your RRSP and TFSA holdings before you leave
- Optimize contribution and withdrawal timing
- Apply treaty provisions to minimize taxes
- Ensure compliance with both Canadian and foreign tax rules
Your RRSP and TFSA can continue to work for you while abroad, but only if you know the rules. Planning can save you thousands and keep your accounts penalty-free.
Contact Accounting Montreal today for an RRSP and TFSA strategy session tailored to your expat situation.
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