The article “Do non-residents pay tax on CPP? What if you live in the U.S.?” was originally published in MoneySense on May 23, 2023. Photo by Mike Jones from Pexels.
Withholding tax is generally the only Canadian tax a non-resident pays for their CPP pension, and the tax burden is even smaller for non-residents living in the U.S.
“I moved to the U.S. at the age of 50, ten years ago, and currently live in Phoenix. When I turned 60, I applied for my Canadian CPP and started to collect. The payment is going into my Canadian bank account. My question is do I pay taxes on that money? Canadian taxes? U.S. taxes?” Richard
Cross-border taxation of CPP and Social Security
A non-resident of Canada who contributed to the Canada Pension Plan (CPP) can receive their retirement pension while living outside of Canada. Like Canadian residents, non-resident pensioners can apply to begin their pension any time between the ages of 60 and 70.
CPP can even be paid into a foreign bank account in a foreign currency. Whether it is paid into a Canadian bank account in Canada or into a foreign bank account elsewhere, the tax implications are the same.
How tax on CPP is applied for non-residents
There is a standard withholding tax rate of 25% that is retained at the source by Service Canada. This assumes the applicant correctly indicates their non-residency on their application form. Withholding tax is generally the only Canadian tax obligation a non-resident has for their CPP pension.
That said, Richard, U.S. residents benefit from a reduced withholding tax rate of 0%. The U.S. allows the same nil withholding tax treatment for Social Security—the equivalent of CPP in the U.S.—for a Canadian resident receiving Social Security.
U.S. residents are taxed on their worldwide income, including CPP. Canada and the U.S. have agreed in their tax treaty to only tax 85% of CPP received by a U.S. taxpayer and 85% of Social Security received by a Canadian taxpayer.
So, assuming you are considered a U.S. resident, you have no withholding tax and no Canadian tax filing obligation for your CPP, Richard. It should be reported on your U.S. tax return, and 15% of it is tax free to you.
Rules for Canadians also receiving a U.S. Social Security pension
If you are also entitled to a Social Security pension, Richard, your CPP may have an impact on it when you apply. This is because of the Windfall Elimination Provision (WEP). This Social Security nuance can cause a reduction in the pension if the pensioner receives a retirement pension for work that they did in another country for which they did not make Social Security contributions.
When you are 65, Richard, you may be able to apply for your Old Age Security (OAS) pension. As a non-resident, the criteria for qualifying for payments while living outside of Canada are:
- You lived in Canada for at least 20 years after turning 18.
- You lived and worked in a country that has a social security agreement with Canada. The time you lived or worked in that 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 Non-Residents of Canada) to your U.S. accountant so that they can report it on your U.S. tax return, Richard. But again, under the United States-Canada Income Tax Convention, you have no Canadian tax to pay on your CPP as a U.S. resident.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.