Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether an individual is a non-resident of Canada and required to file a tax return to report pension income.
Position: Where an individual living abroad has no significant ties to Canada, the non-resident tax withheld is generally the final tax obligation to Canada on certain pension income.
Reasons: General comments provided.
XXXXXXXXXX
2012-044482
June 22, 2012
Dear: XXXXXXXXXX:
Re: Determination of Residency Status and Tax Return Filing Requirements
This is in response to your written enquiry regarding your residency status and your obligation to file a Canadian tax return to report Canadian source pension income where Part XIII withholding tax has been deducted.
In the situation you described, you are retired and have not lived in Canada since XXXXXXXXXX. You have provided the following additional facts:
- Your only tie to Canada is a bank account from which you receive pension payments net of withholding tax.
- You do not rent or own property in Canada
- You have no subscriptions on Canadian publications
- You have no relations in Canada
- You are not a member of a Canadian social organization
- You do not have Canadian health insurance
- You do not have a Canadian mailing address
- You have XXXXXXXXXX social insurance number, driver’s licence, medical insurance, pensions, and bank account
- Your spouse is a XXXXXXXXXX National and you reside permanently together in XXXXXXXXXX with all other personal possessions and do not have a seasonal residence in Canada
- During the XXXXXXXXXX years since you left Canada, you have returned XXXXXXXXXX for a holiday.
Where tax was withheld on Canadian-source pension income, non-residents of Canada do not generally have to report the income or tax withheld on a Canadian T1 tax return. Generally, where an individual living abroad has no significant ties to Canada, the non-resident tax withheld is the final tax obligation to Canada on certain pension income.
Interpretation Bulletin IT-221, Determination of an Individual’s Residence Status provides that,
The most important factor to be considered in determining whether or not an individual leaving Canada remains resident in Canada for tax purposes is whether or not the individual maintains residential ties with Canada while he or she is abroad. While the residence status of an individual can only be determined on a case by case basis after taking into consideration all of the relevant facts, generally, unless an individual severs all significant residential ties with Canada upon leaving Canada, the individual will continue to be a factual resident of Canada and subject to Canadian tax on his or her worldwide income.
The residential ties of an individual that will almost always be significant residential ties for the purpose of determining residence status are the individual's
(a) dwelling place (or places),
(b) spouse or common-law partner, and
(c) dependants.
Based on the facts you have provided, it appears that your significant residential ties are with XXXXXXXXXX. On this basis, you are likely a resident of XXXXXXXXXX, not Canada and you do not have to file a Canadian tax return, providing non-resident tax has been withheld on Canadian-source pension income paid or credited to you.
Although Canada ordinarily taxes outbound Canadian source pension payments at a 25% rate, the terms of the Convention between Canada and XXXXXXXXXX (the “Convention”) may provide a reduced rate of 15% withholding tax to certain pensions, annuities and similar payments. As an alternate to paying non-resident withholding tax rates, any non-resident individual can choose to file a Canadian tax return and benefit from lower Canadian tax rates on their Canadian pension benefits. Unfortunately, you must continue to file a Canadian tax return and write “section 217” at the top of page 1 of your return in order to benefit from this alternative taxing method.
Canada also applies an Old Age Security (“OAS”) tax to recover OAS benefits from higher income taxpayers to the extent that an individual's world net income for the year exceeds an indexed threshold. To ensure that your OAS payments are not interrupted, you must file the Old Age Security Return of Income form T1136 regardless of your income level.
We have enclosed form T1136 for your convenience.
We trust these comments will be of assistance to you.
Yours truly,
Lita Krantz
Assistant Director
International Division/ Division des opérations internationales
International Section III
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Encl: 1
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