Leaving Canada? What about RRSPs?
I read a great article on Tim Cestnick's site today regarding what Canadians should do with their RRSPs when permanently leaving Canada for retirement. That is, how to efficiently minimize the tax of withdrawing from RRSP's when one becomes a non resident of Canada.
The actually learned a lot from this article, and I thought I would share with you the highlights.
1. Leave the RRSP Intact.
- A lump sum collapse of an RRSP account can result in the highest taxation possible in Canada. Of course, this depends on your income for the year and the balance of your RRSP.
- Instead, if you need to withdraw from your RRSP, it's best to wait until permanent residency is established in the new country. Once residency is setup, CRA will only charge you a 25% withholding tax (as low as 15% in some countries).
2. Step up the Cost Base.
- If you move to the states and withdraw from your RRSP, the US government will tax you, but will allow your cost base to be withdrawn tax free. For example, if you purchased $50k worth of stock and it's now worth $150k, $50k can be withdrawn tax free.
- To avoid this tax, step up your cost base BEFORE moving to the states. In other words, sell your shares inside your RRSP and repurchase them.
3. Give up Residency Properly.
- If CRA determines that you are still tied to Canada and residency not properly setup elsewhere, they will charge your RRSP withdrawals at full Canadian tax rates. Check out Tim Cestnick's article on some tips on how to properly give up Canadian residency.
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