I have a former client who is an Australian citizen who worked and lived in Canada for 15 years until 2015 and moved back to Australia. When she left her employer she commuted her pension into a RIF. She has not added or removed any of the funds since 2015. Her financial adviser in Canada is now not able to manage my RRIF because of hefty penalties for managing finances for a non resident. She opted to cash it out and have it send over there. They will withhold the taxes. My question is, does a Canadian non-resident tax return have to be filed?
Since this is a lump sum the financial institution will likely deduct a flat rate of 25% withholding tax (rather than 15% on periodic payments) and issue your client an NR4 slip (instead of a T4RIF). If she is a non-resident of Canada the 25% rate is considered to be the tax due on the withdrawal and she has no further obligations to the CRA regarding the RIF. Unless she is required to file a Canadian return for another reason, she does not need to file a non-resident return to report the RIF proceeds.
Thank you Wayne.
The others are correct in that you don’t have to file a Canadian tax return for your Australian client as the 25% non-resident withholding tax is considered the final tax obligation by the CRA but in certain situations it can be beneficial. Generally if the client has no other income (90% of world wide income must be Canadian sourced) and the lump sum withdrawal was small enough that the tax would be less than 25% using the graduated rates and once personal tax credits are taken into account then you may want to file a section 115 tax return. Admittedly this is rare but it happens sometimes with seniors.
Thank Laurie. She was in Canada for more than 15 years until leaving permanently in 2015. She is 56 years old. Sounds like they did take the 25% withholding tax when it was cashed out and transferred to Australia.
I believe that the Treaty with Australia currently also provides for a 15% Part XIII rate in the case of lump sum RRIF does it not? - the taxpayer should have already previously informed the financial institution that they are tax resident in Australia.
Upon doing a bit of research it seems you are quite correct Joe. The withholding tax would likely be 15% due to the treaty between Canada & Australia rather than the blanket rate of 25% that I had previously mentioned. The 25% rate would apply to residents of countries that we don’t have specific treaties with. I suppose I need to be more careful when making generalized statements.