CPP can even be deposited in a foreign currency into a foreign bank account. Whether the payment is made to a Canadian bank account in Canada or to a foreign bank account elsewhere, the tax implications are the same.
This is how the CPP tax is levied on non-residents
There is a standard withholding rate of 25% that is withheld by Service Canada at source. This requires that the applicant correctly states in their application form that they are non-resident. Withholding tax is generally the only Canadian tax liability a non-resident has on their CPP pension.
However, Richard, US citizens benefit from a reduced withholding tax rate of 0%. The US allows the same no-withholding treatment for Social Security—the US equivalent of CPP—to a Canadian resident who is collecting Social Security.
US residents are taxed on their worldwide income, including CPP. Canada and the US have agreed in their tax treaty to tax only 85% of the CPP received by a US taxpayer and 85% of the Social Security received by a Canadian taxpayer.
So if you are considered a US resident, you have no withholding and no Canadian tax filing on your CPP, Richard. It should be included on your US tax return and 15% of that is tax-free for you.
Rules for Canadians who also receive a US Social Security pension
If you are also eligible for a Social Security pension, Richard, your CPP may affect this when you apply. This is due to the Windfall Elimination Provision (WEP). This nuance of social security can lead to a reduction in pension if the retiree receives an old-age pension for work done in another country for which he did not pay social security contributions.
When you are 65 Richard you may be able to claim your Old Age Pension (OAS). As a non-resident, the following criteria apply to eligibility for payments if you live outside of Canada:
- You have lived in Canada for at least 20 years after the age of 18.
- You have lived and worked in a country that has a social security agreement with Canada. The time you have lived or worked in this country and Canada must be at least 20 years.
You should provide a copy of your NR4 tax slip (statement of amounts paid or credited to nonresidents of Canada) to your US accountant for inclusion on your US tax return, Richard. Again, under the United States-Canada Income Tax Treaty, if you are a US citizen, you do not have to pay Canadian tax on your CPP.
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