I am a 32-year-old teacher currently working overseas. For tax reasons, I am not currently a resident of Canada (but I am a citizen). I want to put some money into an investment for my retirement (RRSP, tax-free savings account), but am unsure what is best for me as I continue to live overseas and am not sure when I will return to Canada to live and work. What would you suggest?
Asked by Heather, Canadian living abroad
It makes the most sense to respond to this question as if you are contemplating leaving Canada. In this case, I would strongly encourage you to contact your Investment Advisor as well as a cross-border tax or legal professional well in advance of your departure. They can discuss the various income tax and estate planning issues that may apply to you and help you decide on the appropriate strategies that can be implemented.
With that said, the following are some general guidelines as to what can and cannot be done when it comes to non-resident investing:
Tax-Free Savings Accounts (TFSA)
If you become a non-resident of Canada, you are allowed to keep your TFSA. However, no contributions will be allowed and no contribution room will accumulate while you are a non-resident of Canada.
Any withdrawals made from your TFSA while a non-resident of Canada will be added to your unused TFSA contribution room the following year; however it will only become available for use once Canadian residency is re-established.
Although the investment income earned in the TFSA is tax-free for Canadian purposes, it may be taxable in the country you are a resident in. You should ask a cross-border tax accountant to confirm taxation of a TFSA in the residing country.
Registered Retirement Savings Plans (RRSP)
Contrary to popular belief, one is not required to deregister their RRSPs upon ceasing Canadian residency. You have the option to keep your RRSP intact and have the income continue to grow tax-deferred for Canadian tax purposes. The tax laws in the other country may require the taxation of income earned annually in your registered plan. If this is the case, you will need to weigh the option to keep the RRSP or deregister it.
Although you can continue to contribute to an RRSP as a non-resident (assuming you have the contribution room), it may not make sense to do so. For example, if you no longer have a requirement of filing a Canadian tax return, you will not be able to make use of the RRSP tax deduction as a result of any RRSP contribution and a tax deferral may not be available in the country in which you are residing. An RRSP contribution can be carried forward for Canadian tax purposes, however will only be usable in the future if you re-establish Canadian residency.
Also note if you have a Home Buyers Plan (HBP) or Life Learning Plan (LLP) balance and subsequently become a non-resident of Canada, your whole HBP or LLP balance will become payable. If you do not pay the outstanding balance by the required due date that applies to you, the unpaid balance must be included in calculating your tax liability for the year in which you became a non-resident.
Canadian Mutual Funds held in non-registered accounts
Canadian mutual fund companies will not sell their domestic mutual funds to residents of a foreign country. If you already own Canadian-based mutual funds before you leave Canada, you will generally not be required to dispose of them, and may only be allowed re-investment of distributions. You will not be allowed any trading of mutual funds either.
So what's left, you ask?
Once your residency code changes, Canadian investment options are pretty much limited to savings accounts and non-registered GICs, unless you know of a dual-licensed (also licensed in the country you reside in) Investment Advisor that is willing to take you on as a client.