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Originally posted by ashedfc

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Originally posted by pratickm
Keep in mind that no tax has been paid on that $5K yet, in any country.

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In this case, isn't the tax on the $5000 RRSP withdrawal being paid in Canada.
The withholding tax is applied at source & the refund of withholding by CRA is based on the basic minimum exempt income

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Quote:

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Originally posted by meitsme

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Originally posted by ashedfc

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Originally posted by pratickm
Keep in mind that no tax has been paid on that $5K yet, in any country.

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In this case, isn't the tax on the $5000 RRSP withdrawal being paid in Canada.
The withholding tax is applied at source & the refund of withholding by CRA is based on the basic minimum exempt income

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I was looking for information about RRSP withdrawALS for non-resident (who is Candian citizen but moved back to India )

I found this thread and I am little bit confus(e.)ing.

Also, I found following link:
http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/lvng-eng.html#g

look at detail under Part XIII tax section.

It looks like RRSP withdrawal (for non-resident) will be subject to 25% tax at source and it won't be refundable. Non-Resident doesn't need to file the tax return for this income.

Let's assume that non-resident have only $5K income (RRSP withdrawal) in Canada and file the tax return. Do you think he will get refund of $1250 (25% of $5K) which was deducted at source?

KumarM, What happen in your case?

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Hi Guys,

See some information below from

http://www.ica.bc.ca/kb.php3?pageid=4958&mobileSession=a7bf75bb57537bb0ab17f79723cb0db3 link.

If an individual decides to close their existing accounts, they will be required to withdraw the funds. If the funds are withdrawn while the individual is a resident of Canada, the amount of the withdrawal will be subject to Canadian tax at the individual's top marginal tax rate for the year. By contrast, if the funds are withdrawn while the individual is a non-resident of Canada, said individual will be subject to a final, non-resident Canadian withholding tax of 25%.[1] However, it should be noted that the foreign jurisdiction in which the individual resides may want to tax the withdrawal in accordance with its own rules.


I found link below which indicate the non-resident tax rate is 25% for Indian resident while 15% for US resident. (RRSP withdraw)

https://repsourcepublic.manulife.com/wps/wcm/connect/74a3fe00441949aabfa7ff2a849aab13/inv_trs_nonreswithholdingrates.pdf?MOD=AJPERES&CACHEID=74a3fe00441949aabfa7ff2a849aab13


What about if withdrawing all RRSP (i.e. $40K) in January (i.e. Jan 2013) while resident of Canada and becoming non resident in February (i.e. Feb 2013).

When filing income tax for year 2013, do you think marginal income tax will apply on $40K? OR income will be pro-rated for resident and non-resident status of year 2013 and tax will be deducted according to status in canada? (You can assume that there is no other income from the world)

Any idea?

I'll appriciate your response.

Thanks.

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Quote:

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Originally posted by meitsme

Hi Guys,

See some information below from

http://www.ica.bc.ca/kb.php3?pageid=4958&mobileSession=a7bf75bb57537bb0ab17f79723cb0db3 link.

If an individual decides to close their existing accounts, they will be required to withdraw the funds. If the funds are withdrawn while the individual is a resident of Canada, the amount of the withdrawal will be subject to Canadian tax at the individual's top marginal tax rate for the year. By contrast, if the funds are withdrawn while the individual is a non-resident of Canada, said individual will be subject to a final, non-resident Canadian withholding tax of 25%.[1] However, it should be noted that the foreign jurisdiction in which the individual resides may want to tax the withdrawal in accordance with its own rules.

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RNOR for THREE Years.

http://www.moneycontrol.com/news/nri-experts/you-can-bernor-for-3-years_208943.html

You can be an RNOR for 3 years

Source: Moneycontrol.com
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You can be an RNOR for 3 years

What exactly is RNOR?

RNOR stands for Resident but not Ordinarily Resident (RNOR). This is essentially a transitional status between being an NRI and becoming a full-fledged Resident. Normally a person would be either a Resident (of India) or an NRI. However, the Indian Income Tax Act has specified this transitional status of an RNOR subject to the satisfaction of some specific conditions. Let us see what these conditions are:

Resident but not Ordinarily Resident (RNOR) is a person who satisfies any one of the following two conditions ---

a) he has been a non-resident in India in nine out of the ten previous years preceding that year, or

b) has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

Simply put, when you return back to India, you will be an RNOR if you have been an NRI for 9 out of last 10 years or if you have spent less than 729 days in India in the last 7 years.

It is important to note that the above mentioned conditions are alternative and not cumulative. Which means you have to satisfy any one of them and not both.

Benefits of RNOR

Having the status of RNOR, for the most part, means that after having come back to India, you can continue to get the tax benefits that you were getting as an NRI. That means your foreign income i.e. any interest or dividends that you may be getting from your investments abroad will continue to remain tax-free even after you have become an Indian resident. Similarly, interest on any FCNR deposits that you may will continue to remain tax-free as long as you are an RNOR. Ergo, the longer you have this status, the more beneficial it is.


Now, let us examine exactly how long can one maintain the status of an RNOR. For this we need to go back a little bit into history.

Earlier RNOR was for 9 years

In the good old days, several lucky NRIs have availed of nine whole years of the RNOR status. The way the words of the concerned section (Sec. 6 of the Tax Act) were framed, a plain reading resulted in the conclusion that a returning NRI could be an RNOR for nine years.

However, in April 2004, the government woke up and declared that it was never the intention of the law to grant such status for nine years. Consequently Finance Act 2003 amended the law as detailed above. The reframing of the words had the immediate fall out of lowering the number of years that a person could be RNOR from a maximum of nine to a maximum of two.

Or that�s what most think.

However, this article will demonstrate how under certain conditions an NRI could be an RNOR for three years instead of two.

RNOR for 3 years

The general conception that the RNOR status is available for a maximum of 2 years is on account of the focus on the first condition only. For, if only the first condition is considered (of having been an NRI for 9 out of 10 years) one does find that the RNOR status can be indeed be availed for a max of 2 years. However, what about Condition No. 2? As mentioned before, these conditions are alternative and the satisfaction of any one is enough to qualify as an RNOR.

Case study

Therefore, lets take the example of one Mr. Kapoor who has lived for most of his life in the USA and now is intending to return to India for his retirement. In the past 9 years, Mr. Kapoor has never visited India and the first time he arrives in India is on the 4th of April 2006 i.e. in FY 2006-07.

Let�s first consider Condition No. 1.

For FY 2006-07, Mr. Kapoor has been an NRI for 9 out of the last 10 years�.therefore for FY 06-07 he will be an RNOR. Now for the next year (FY 07-08) too, Mr. Kapoor has been an NRI for 9 out of the last 10 years�so he will be an RNOR again.

However, in FY 08-09, Mr. Kapoor has been a Resident in the previous two years (since he was in India) and therefore will not satisfy the 9 out of 10 condition. Consequently, he loses his RNOR status from FY 08-09 and becomes a full fledged Resident. Incidentally this status is known as R&OR (Resident and Ordinarily Resident).

This was as per Condition No. 1. Now for Condition No. 2, consider the following table.

Year No. of days stay in India

97-98 0

98-99 0

99-00 0

00-01 0

01-02 0

02-03 0

03-04 0

04-05 0

05-06 0

06-07 362

07-08 365

08-09 365

The above table details the number of days Mr. Kapoor has and will spend in India. Remember that he has arrived on the 4th of April, 2006�.which means that for FY 06-07 he will end up spending 362 days in India.

Now lets take Condition No. 2 and apply it for each year. For FY 06-07, in the previous seven years since Mr. Kapoor hasn�t spend any days in India, he will qualify to be an RNOR. For FY 07-08, Mr. Kapoor in the previous seven years will have spent 362 days in India and therefore will be an RNOR.

And for FY 08-09, Mr. Kapoor will end up spending 727 days in India (365+362). 727 days being less than 729, again Mr. Kapoor will end up being an RNOR!

Its only in FY 09-10 that Mr. Kapoor will cross the 729 day limit and transition from being an RNOR to an R&OR.

To Conclude

It is important to realize that from a tax planning angle, your date of arrival in India is extremely critical. I can go as far as saying that for returning NRIs, planning your travel itinerary is almost akin to tax planning.

If you can, always plan to arrive into India after the 1st of October in any year. This way you can live in India for the rest of the year and yet be an NRI and not pay tax.

And if that�s not possible, at least try and come after the 2nd of April of any year. This way, you can possibly optimize the RNOR status.

And last but not the least always remember, for the RNOR status, Condition No. 2 is as important if not more for determining your taxability.

The writer may be contacted at <sandeep.shanbhag@gmail.com>

Tax Traps & Tips: Non-Residents and Their RRSPs
Beyond Numbers · September 2011

By Lawrence Bell, CA

Although maintaining a registered retirement savings plan (RRSP) or locked-in RRSP is one of many factors when determining an individual's residency status, there is no rule under the Income Tax Act (Act) requiring an individual to wind up their RRSP accounts in order to qualify as a non-resident of Canada.

On becoming a non-resident of Canada, the individual should notify their financial institutions of their change in residency status. Certain financial institutions have administrative rules restricting the individual's ability to invest in equity investments (including mutual funds) due to regulatory concerns in many foreign jurisdictions. Given these limitations, individuals need to assess whether it is prudent to maintain these existing retirement plans or close them. Should they decide to maintain their current RRSP accounts, they will need to consider the tax treatment of these accounts in their new country of residency.

RRSP accounts

If an individual decides to close their existing accounts, they will be required to withdraw the funds. If the funds are withdrawn while the individual is a resident of Canada, the amount of the withdrawal will be subject to Canadian tax at the individual's top marginal tax rate for the year. By contrast, if the funds are withdrawn while the individual is a non-resident of Canada, said individual will be subject to a final, non-resident Canadian withholding tax of 25%.[1] However, it should be noted that the foreign jurisdiction in which the individual resides may want to tax the withdrawal in accordance with its own rules.

If the individual relocates to a country that has signed an income tax treaty with Canada, there is usually a reduction in the rate of non-resident withholding tax to 15% for periodic pension payments. The term "periodic pension payment" is not defined in the Act; nor is it defined in most of the applicable income tax conventions; therefore, to the extent that a term in a convention is not defined, it is necessary to refer to Canada's Income Tax Conventions Interpretation Act (ITCIA). The ITCIA defines "pension" to include payments arising under an RRSP and a retirement income fund (RRIF), but defines "periodic pension payment" to exclude withdrawals from a RRSP.[2]

As withdrawals from an RRSP are not included in the definition of a "periodic pension payment," individuals must convert their RRSPs into RRIFs in order to take advantage of the reduced non-resident withholding tax rate. At any time before the maturity of their RRSP plan (currently age 71), an individual can transfer any property from the RRSP to an RRIF.[3] And as long as a withdrawal from the RRIF does not exceed the greater of twice the "minimum amount" (as defined in the Act[4]) and 10% of the fund value at the beginning of the year, the withdrawal should qualify as a periodic pension payment eligible for the reduced non-resident withholding tax rate. Any withdrawals in excess of the periodic pension amount would be subject to the non-resident withholding tax of 25%.[5]

Therefore, to ensure that there is an eligible amount to withdraw from the RRIF in any given year, the RRSP should be converted to an RRIF at any time during the taxation year prior to December 31 of the previous year.

To the extent that withdrawals are subject to tax in the new country of residence, the Canadian withholding tax may be creditable against any tax liability in the new country of residence.

Alternatively, instead of paying tax at non-resident withholding tax rates, an election is available to have the withdrawals taxed at the individual's graduated tax rates. The individual can accomplish this by electing to file a Canadian tax return[6] within six months of the end of the taxation year for which they are making the election. This elective tax return calculates the tax liability based on the individual's worldwide income. A special tax credit is available to back out the proportion of the tax allocated to their foreign-source income and Canadian-source income, which remain subject to non-resident withholding tax. However, this election can potentially increase the applicable rate of tax on the withdrawals; generally, it is only advantageous where the individual has a minimal amount of foreign income.

Locked-in RRSP accounts

Many individuals who move from one employer to another are required to collapse their pension plans with their former employers. Although transfers from a registered pension plan to either an RRSP or RRIF are permitted,[7] provincial pension legislation will generally require that the pension funds are transferred to a locked-in RRSP or life income fund (essentially a locked-in RRIF). The reason for this requirement is that provincial pension legislation regulates the maximum amount that can be withdrawn each year from these locked-in accounts. For example, in British Columbia, the maximum withdrawal is based on the owner's age, current long-term interest rates, and the previous year's investment returns for the fund.

Individuals with locked-in accounts are generally precluded from collapsing these accounts because of provincial and federal regulations. (Provincial pension legislation generally covers employment pension plans that have members in their respective provinces, while the Office of the Superintendent of Financial Institutions Canada administers federally regulated pension plans.) However, some provinces do allow for the unlocking of all or a portion of a locked-in account under certain circumstances—for example, if an individual becomes a non-resident of Canada.

In BC, a pension entitlement held in a locked-in account can be unlocked if the individual satisfies the following conditions:

Completing Form 6, "Certificate of Non-Residency"[8] and filing a copy with the financial institution where the locked-in account is held;
Attaching written evidence that the CRA has determined them to be a non-resident of Canada for tax purposes; and
Ensuring that their spouse (if the individual has a spouse) waives any entitlement by completing Form 2, "Spouse's Waiver of Entitlements Under a Pension Plan, an RRSP, a Life Annuity, or a LIF Contract."[9]
Written evidence of an individual's residency status can be obtained from the CRA by completing Form NR73 – Determination of Residency Status (Leaving Canada).

For locked-in accounts that are federally regulated, the pension entitlement can be unlocked if an individual ceased to be a resident of Canada at least two consecutive calendar years prior, and if the individual is no longer employed by the employer from which the pension funds originated. Where the unlocking is due to an individual being a non-resident of Canada, no prescribed forms are required; furthermore, no spousal consent is required, but, administratively, a financial institution may require some form of waiver under its risk management policies.

Other Canadian provinces, such as Alberta, Manitoba, New Brunswick, Newfoundland & Labrador, Nova Scotia, Ontario, Quebec, and Saskatchewan, allow individuals to unlock accounts.

Once the accounts are unlocked, the individual can decide whether or not to collapse the plans as discussed above. If the individual decides not to collapse the plans, they should still seriously consider unlocking the accounts, as an unlocked account may provide greater flexibility for withdrawals in their retirement years.

Lawrence Bell, CA, is a senior manager with the International Assignments and Rewards practice of PricewaterhouseCoopers LLP in Vancouver.

Two additional tips to consider:

RRSPs are excluded from the departure tax rules[10] once the individual has been determined to be either a factual non-resident or a deemed non-resident.[11]
Where an individual participates in the Home Buyers Plan or the Lifelong Learning Plan prior to emigrating, they are required to include into their income any outstanding plan balances less amounts repaid within 60 days of becoming a non-resident of Canada.[12]
Footnotes

Income Tax Act, Paragraph 212(1)(l).
ITCIA, Section 5.
Income Tax Act, Paragraph 146(16)(a).
Subsection 146.3(1). Deemed to be nil for the year the fund was entered into, otherwise Regulation 7308 sets out the prescribed factor.
Paragraph 212(1)(q).
Section 217.
Subsections 147.3(1) and 147.3(4).
http://www.fic.gov.bc.ca/responsibilities/pension/rsp-lif/except" rel="nofollow">LINK
Ibid.
Excluded rights and interests are defined in Subsection 128.1(10) of the Act.
Subsection 250(5).
Subsection 146.01(5) with respect to the Home Buyers Plan and Subsection 146.02(5) with respect to the Lifelong Learning Plan.

http://www.ica.bc.ca/kb.php3?pageid=4958&mobileSession=a7bf75bb57537bb0ab17f79723cb0db3%20link.

Good to remember this. (Rules might change)

Full House.

Thanks FH.

Let's consider following simple example for now.

As of today(7th April 2013) , Person X has $30K in his RRSP. He had HBP loan in past and remaining amount is $20K after paying tax for year 2012. Every year HBP payment is about $1500.

Person X has plan to become non resident in June 2014 (move back to India to settle permanently). His income for year 2014 (Jan to June) is about $35K.

For this example, you can consider his income in India 0. don't worry about tax implication and his status in India. I am wondering about his status and tax implication in Canada when he tries to withdraw money from RRSP. He doesn't need this money for an emergency.

When and what amount he should withdraw to stay away from paying tax on RRSP withdrawal? (His total world income is just RRSP withdrawal for next few years)

if that is not possible, what is the best way to withdraw his RRSP? How much he should withdraw for next few years?

What I was saying in my last post is if he will be considered as non resident then he will endup with paying 25% tax on RRSP withdrawal (even if amount is only $5K/year). Do you agree with this?

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