Retiring or Relocating Outside Canada: Impact on Your Retirement Benefits
As more Canadians opt for retirement destinations with affordable living costs and warmer climates, it raises questions about the fate of their pension and security payments. Whether you’re a snowbird escaping the winter or permanently leaving Canada, this article explores the implications for your CPP and OAS Benefits, and other government benefits when you decide to move abroad.
Collecting OAS Benefits While Living Abroad: A Guide
Old Age Security (OAS) is one of the primary sources of retirement income for Canadians. Starting at the age of 65, eligible seniors can receive OAS benefits. To continue receiving OAS pension while living outside of Canada, individuals must be 65 or older and have resided in Canada continuously for at least 20 years after turning 18.
However, there are scenarios where individuals may still qualify for OAS even if they don’t meet the 20-year requirement. Residing and working in a country with a social security agreement with Canada could make them eligible. Additionally, individuals may qualify if they don’t spend more than 6 months per year outside of Canada.
The amount of OAS received depends on the duration of residency in Canada. A full OAS pension requires a minimum of 40 years of residency in Canada. For example, a 20-year residency corresponds to 20/40 of the full pension amount.
Immigrants who haven’t been Canadian residents for 20 years or who haven’t met the OAS residency requirement may lose their OAS payments if they stay outside of Canada for more than 6 months. However, pension payments can be resumed upon returning to work.
Taxation of OAS Payments: What You Need to Know
The taxation of pension payments, including Old Age Security (OAS), depends on your overall income and tax status as a resident, non-resident, or factual resident. Non-residents receiving OAS benefits are typically subject to a default withholding tax rate of 25%. However, if your new country of residence has a tax agreement with Canada, this tax rate may be reduced or waived.
For instance, under the tax treaty between Canada and the United States, if you relocate to states like Florida or Arizona for a year-round warm climate, your OAS and CPP/QPP benefits are not subject to withholding tax.
Collecting CPP While Living Abroad
Canada’s retirement income system includes the Canada Pension Plan (CPP), which provides approximately 25% of the average senior’s pre-retirement income. In Quebec, this plan is known as the Quebec Pension Plan (QPP).
To be eligible for CPP benefits, you must have worked and made contributions to the CPP or QPP. Unlike OAS, CPP is a contributory benefit. CPP pensions can be claimed as early as age 65.
Regardless of where you choose to permanently reside in Canada, your CPP benefits will continue even if you don’t meet the OAS residency requirements, as you are not required to stay in Canada. Similar to OAS pensions, CPP and QPP pensions are subject to a flat withholding tax rate of 25%, unless you live in a country with a tax treaty with Canada. In most cases, you will pay less tax in your country of residence because Canadian taxes have already been deducted from your paychecks.
Survivor’s benefits and child benefits under CPP are also available to Canadians living outside of Canada, even in the event of the recipient’s death.
Receiving OAS and CPP Payments Abroad: A Step-by-Step Guide
When it comes to receiving OAS benefits and CPP or QPP pensions while residing abroad, the following process applies:
- Currency and Payment Method: OAS benefits and CPP/QPP pensions can be deposited into your account in your local currency. Unless there are specific restrictions in your country of residence, the Receiver General of Canada typically sends a check in Canadian dollars made out to you.
- Determining Eligibility: To determine your eligibility for retirement benefits while living outside of Canada, you can contact Service Canada at 1-800-454-8731 or 1-613-957-1954 if you are calling from Canada or the U.S.
Retiring Abroad and Provincial Retirement Benefits
If you retire abroad, the chances of receiving additional provincial retirement benefits, such as the 55 Plus Program, are extremely slim. These provincial benefits are typically available to low-income Canadians who permanently reside within the province and receive GIS/OAS payments. Therefore, if you are residing outside of Canada, the likelihood of qualifying for provincial benefits is minimal.
It’s important to note that eligibility criteria and regulations may vary between provinces, so it’s advisable to consult with the relevant provincial authorities or Service Canada for specific details based on your situation.
In Summary
Canada’s Old Age Security (OAS) program serves as a significant retirement income source for Canadians. To qualify for OAS pension, individuals must be 65 years or older and have resided in Canada for at least 20 years after turning 18.
If you have resided in Canada for at least 20 years, your OAS pension will be reinstated once you return to work. Additionally, Canada’s retirement income system, including the Canada Pension Plan (CPP), contributes to a robust retirement framework.
A default withholding tax rate of 25% applies to CPP and Quebec Pension Plan (QPP) pensions, unless you reside in a country with a tax agreement with Canada. If you live in a country without such an agreement, your CPP and QPP pensions will be subject to taxation.
The Receiver General of Canada is responsible for distributing your pension payments. Even if you are living outside of Canada, you can still receive CPP survivor’s pension for yourself and your children. However, the applicable withholding tax rate may vary, potentially being 25% or less, depending on the circumstances.