Canadian Non-Resident Tax: Information about pensions
During the course of their employment, many Canadians accumulate a pension. Many pensions are funded with an employee’s pre-tax income. As a result, upon retirement, each employee (even non-residents) will be subject to income tax obligations on their annual pension income payments. For those individuals in Canada who are non-residents, the Canada Revenue Agency provides a method under section 217 of the Income Tax Act in which they can report their pension income in order to potentially lessen their income tax burden.
Section 217 Election
Canadian payers have to withhold non-resident tax on certain types of income they pay to non-residents, including pension income. This withholding tax is usually the non-resident’s final income tax obligation to Canada on this income; as a result, the non-resident typically does not have to file a Canadian income tax and benefit return to report it.
However, under Section 217, the Canada Revenue Agency permits non-residents to elect to file a Canadian return and report pension income (CPP. OAS, employer pensions), as well as the following types of Canadian-source income:
- most registered retirement savings plan payments;
- most registered retirement income fund payments;
- death benefits;
- employment insurance benefits;
- certain retiring allowances;
- registered supplementary unemployment benefit plan payments;
- most deferred profit-sharing plan payments; and,
- prescribed benefits under a government assistance program;
By making this election, you, as the non-resident in Canada, are able to pay tax on this income using an alternative method. And, by doing so, you may be entitled to receive a tax refund of some or all of the non-resident tax withheld.
The Benefits of the Section 217 Election
The basic premise of a Section 217 election is that it allows a non-resident to voluntarily file an income tax return so that they will not be in a worse tax position than if the taxpayer was a resident of Canada. Accordingly, on the types of income aforementioned, on filing such an election, the non-resident is able to claim the same deductions and credits to which a resident Canadian taxpayer is allowed.
If the amount of non-resident tax withheld is more than that claimed under the election, the Canada Revenue Agency will refund the difference to you. And because the Section 217 election is voluntary, if you would not receive any tax refund from opting in, there is no requirement to do so.
While the Section 217 may sound straightforward, determining if the election is right for you can be complex. If you do earn pension income, or other sources of income listed in this article, you should speak to the tax accountants at Tax Doctors Canada. We have been successfully assisting our clients with these elections for years, and would welcome an oppertunity to help you too with all your Canadian non-resident income tax needs!
Tax Doctors Canada offers a stress free Initial No Obligation Phone Consultation with one of our professionally certified tax accountants. We Welcome Your Business!
Tax Doctors Canada has 3 office locations (by appointment only) in Toronto, Markham and Mississauga to serve you. You can also have one of our certified tax accountants assist you with your personal tax return requirements remotely from the comfort of your home utilizing Tax Doctors Canada's secure document transfer portal. We accept clients from Canada and worldwide.
