What are the benefits of transferring a pension to Canada?
To avoid excess income taxes, you'll need to consider many aspects. It's not always a good idea to transfer your funds to Canada. However, doing so can simplify your life after retirement. For example:
- It can cut down on paperwork and red tape by reducing the number
of tax agencies you need to deal with.
- It lets you avoid foreign exchange rate fluctuations, when other
currencies increase or decrease in value compared to Canadian
- It can streamline management of your estate after your death since your assets will already be held in Canada and your executor will only have to deal with a single tax agency.
But simplicity isn't everything. You should also consider the regulations in effect, possible penalties and income tax calculations when transferring your assets or bequeathing them to your heirs after your death.
Is my pension eligible?
When considering what rules apply to the transfer of your foreign pension, you should ask yourself two key questions: What's your residency status in Canada? What type of foreign pension plan do you have?
What's your residency status in Canada?
To transfer your pension, you must be a Canadian resident for tax purposes. Even if you're a citizen, that doesn't always mean that you're a resident for tax purposes. For more information, please consult the Government of Canada website.
Can my foreign pension be transferred to Canada?
The conditions of your plan may prevent you from transferring your funds to Canada. For instance, this applies to U.K. pension plans until you reach a certain age. Make sure you're aware of these details before beginning the process.
Can my foreign pension benefits be rolled over to an RRSP?
The expert who assists you will check if your foreign pension plan is eligible under the Income Tax Act.
If so, you can make a special RRSP contribution. This will have no impact on your RRSP contribution room. You are not required to have available RRSP contribution room to take advantage of this option.
What happens if my pension is not eligible?
If your foreign pension is not eligible, you may still be able to transfer the funds to your RRSP. However, you will not benefit from the special RRSP contribution and your normal contribution room will be affected. This situation also exposes you to the risk of double taxation.
How much will I have to pay in taxes?
Several factors affect what amounts are payable. This is among the reasons why you should carry out certain calculations before transferring the funds.
You should consider the following factors:
- Foreign taxes payable at withdrawal.
- The credit for foreign taxes paid.
The income tax rules that apply are determined by the tax agreement between Canada and other country where the funds are held.
Will I be taxed twice on the same amount?
If you need to pay taxes in a foreign country, you can recover all or part of the amount with the credit for foreign taxes paid. You will need to apply for this credit in your income tax return (for the year when you transfer the amount).
This is a complex calculation and certain conditions need to be respected. You should consider running simulations with an expert before proceeding with a transfer.
Will I have to pay any other fees?
Penalties and fees may apply depending on the plan. These will apply based on the amount you withdraw from the plan and:
- Your age
- The plan duration (minimum number of years)
- The financial institution (transfer fees for sending and receiving funds)
These penalties and fees (other than taxes) cannot be claimed via the credit for foreign taxes paid.
A few details on retirement plans from certain countries
Here are a few details that may apply to you if you have a pension plan in one of the following countries. Remember that each situation is unique and should be analyzed by a professional.
The United States offer the 401(k), which is similar to our employer pension plans. There's also the IRA, which is similar to our RRSP (not to be confused with a Roth IRA or Inheritance IRA).
As a general rule, if you've contributed to a 401(k), you can transfer the funds to Canada. However, only the amounts invested when you were not a Canadian resident are eligible.
Your status in the United States (green card, US person, non-US person) will also have an impact on transfer rules.
Certain French annuities and pension plans are taxable solely in France and not in Canada. This may lead to double taxation if you transfer the amount to your RRSP.
A Qualifying Recognized Overseas Pension Scheme (QROPS) is an overseas pension plan that the British government considers eligible for transfer abroad. You should be aware that these plans are difficult to find in Canada and have numerous complex terms and conditions.
However, you can still transfer funds from the UK by other means, such as an indirect transfer, but the British tax agency will withhold a certain amount.
If you have a foreign pension plan and you want to transfer it to Canada, get advice from an expert. No matter what your situation, you should consider various scenarios and carry out precise calculations. We're here to answer your questions.