Quote:

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Originally posted by meitsme

Thanks FH.

Let's consider following simple example for now.

As of today(7th April 2013) , Person X has $30K in his RRSP. He had HBP loan in past and remaining amount is $20K after paying tax for year 2012. Every year HBP payment is about $1500.

Person X has plan to become non resident in June 2014 (move back to India to settle permanently). His income for year 2014 (Jan to June) is about $35K.

For this example, you can consider his income in India 0. don't worry about tax implication and his status in India. I am wondering about his status and tax implication in Canada when he tries to withdraw money from RRSP. He doesn't need this money for an emergency.

When and what amount he should withdraw to stay away from paying tax on RRSP withdrawal? (His total world income is just RRSP withdrawal for next few years)

if that is not possible, what is the best way to withdraw his RRSP? How much he should withdraw for next few years?

What I was saying in my last post is if he will be considered as non resident then he will endup with paying 25% tax on RRSP withdrawal (even if amount is only $5K/year). Do you agree with this?

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Thanks FH.

I appriciate your time and respose.

See answer of your questions below.

Is the person's age above 55 or above 65.
- No (about 40)

Can he leave the amount till he turns into 71 and then withdraw a minimal amount which attracts NO tax at this end. (Currently, and of course rules could change)
- No. Would prefer to invest/use this money somewhere else in India. don't want to wait for 71. RRSP is not locked.

Has he lived in Canada Long. If so how long?
- 10 years in Canada.

For time being if we just focus on what tax need to pay in Canada, that will be great. For now, don't worry about income in India (You can consider 0) and how much extra tax need to pay in India. We will talk about that once I'll be clear with tax in Canada.

How much will be the tax if I declare as non resident to CRA? (25% flat or marginal rate of income)

As part of tax return, we need to mention the resident status as of 31st December of tax year. I can't say ontario while living in India and I think that will make me non-resident of Canada.

Any legal way to be considered as resident of Canada for tax purpose while living in India (I don't mind to file tax return every year. I would like to keep my some bank accounts open but I will sell property before moving to india)? if yes, How much will be tax on RRSP withdraw? (marginal rate of income OR 25% flat)


Let me know if you need more information.

Thanks

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OUR TAX SYSTEM : It runs from 1st of January to the 31st of December of each year.

If your salary for the year 2013 upto the month of June, is 35K, they would have with held CPP and Income Tax on it. That will be your total income for that year.
The taxes withheld will be about $7,040 from it.

Here is a little help and here are the tables that you can use to determine what tax bracket you will fall into for an Annual Income of 35K. It says it will be 20.1%.

Raymond Chabot and Grant Thornton.. Tax Planning.
http://en.planiguide.ca/tables/ontario/tax-table/
Hang onto this website. You will get updates every year and plan your taxes with the tables provided by them.

From the tables provided, if you stay here till the end of the year, then, your tax on 35K will be about 20.1%

If you withdraw all of the monies from your RRSP, which you say is 30K, then add the 30K to the 35K salary and it comes to 65K. The tax on 65K will be 31.5% or you can say that you will be paying about $20,475.00 for that year.

Once a Canadian, you are always a Canadian, so, if you live here or not, you will be considered as a Canadian. You can also file your tax returns to them each and every year.

To make yourself a Non Resident Canadian, you will have to sever all of your ties to Canada. You do not want to know about it now, Right?!.

If you want to withdraw the RRSP's at a later date, you are free to do so. The taxes for the year 2013 will be a lot lesser too. Also you will pay little or no taxes to Canada or India, if you plan your departure and withdrawals from the RRSP's accordingly.

You have the tools and now you know how too.


FH.

Thanks for detail.

see link below.

http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html

I am still confuse with your answer. I believe I'll be non resident once I'll move back to India with family after selling home. I will always be Canadian citizen but not living in Canada will make me Non Resident of Canada for tax purpose.

Tax for non-resident is different than resident of canada. I think it will be 25% flat on income from RRSP withdrawal. As per the link above, I think if I'll have $5K RRSP withdrawal income for full tax year (i.e. 2015) after becoming non resident, my tax will be $1250.

This is what something I want to confirm.

If CRA consider me as resident of Canada, tax will be 0 on $5K RRSP withdrawal income but I don't think so CRA will consider me resident of Canada while living full year in India.

What do you think?

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see link below for non-resident tax calculation:

http://www.cra-arc.gc.ca/esrvc-srvce/tx/prtxiii/menu-eng.html

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Success is Never Ending and Failure is Never Final.

There are some changes that have come into the tax rules for deemed non residents, which is, after you move out of Canada and settle down in India......

I will delve a little deeper into the with holding tax on RRSP's for a deemed non resident of Canada who has moved to India. It could be just 15% on that $5,000. That 15% is currently for Periodic Payments only.

Here is the current status:

Although maintaining a registered retirement savings plan (RRSP) or locked-in RRSP is one of many factors when determining an individual's residency status, there is no rule under the Income Tax Act (Act) requiring an individual to wind up their RRSP accounts in order to qualify as a non-resident of Canada.

On becoming a non-resident of Canada, the individual should notify their financial institutions of their change in residency status. Certain financial institutions have administrative rules restricting the individual's ability to invest in equity investments (including mutual funds) due to regulatory concerns in many foreign jurisdictions. Given these limitations, individuals need to assess whether it is prudent to maintain these existing retirement plans or close them. Should they decide to maintain their current RRSP accounts, they will need to consider the tax treatment of these accounts in their new country of residency.

RRSP accounts

If an individual decides to close their existing accounts, they will be required to withdraw the funds. If the funds are withdrawn while the individual is a resident of Canada, the amount of the withdrawal will be subject to Canadian tax at the individual's top marginal tax rate for the year. By contrast, if the funds are withdrawn while the individual is a non-resident of Canada, said individual will be subject to a final, non-resident Canadian withholding tax of 25%.[1] However, it should be noted that the foreign jurisdiction in which the individual resides may want to tax the withdrawal in accordance with its own rules.

If the individual relocates to a country that has signed an income tax treaty with Canada, there is usually a reduction in the rate of non-resident withholding tax to 15% for periodic pension payments. The term "periodic pension payment" is not defined in the Act; nor is it defined in most of the applicable income tax conventions; therefore, to the extent that a term in a convention is not defined, it is necessary to refer to Canada's Income Tax Conventions Interpretation Act (ITCIA). The ITCIA defines "pension" to include payments arising under an RRSP and a retirement income fund (RRIF), but defines "periodic pension payment" to exclude withdrawals from a RRSP.[2]

ALSO, you will be eligible for a FULL Pension at the age of 65, and you will get all of the payments from your CPP Pension, minus 15%, and it will not be taxable in India at that time. You can go to their website and find out how much it will be approximately, today. Also contact them. Have your SIN number handy.

You will also be eligible for the OAS at 67, as it has been changed recently to that age. The with holding tax on that will be 15% also. Since you lived here in Canada for 10 years only, you will get only 25% of the current Max. But you may have to come back and spend an year within Canada to claim it. There is a residential qualification requirement on this OAS.


FH

Before few weeks, I was thinking to withdraw RRSP after moving back to India in such a way that income for that full year will be less than the taxable income. So, I'll save tax on that amount but that is not the case.

If I have saved 30% tax on RRSP contribution and withdrawing after moving to India, actual saving will be only 5%. (25% tax for Indian resident and 15% tax on USA resident)

If I have saved 20% tax on RRSP contribution and withdrawing after moving back to India, I'll loose 5%. In this case, I should have paid tax instead of contributing to RRSP.

What about if I withdraw $20K in first week of January and then move back to India?
Total family income of $20K will not be taxable because I withdraw when I was resident of Canada. is this right? or there is any catch?

Thanks

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Success is Never Ending and Failure is Never Final.