“Where do we pay income tax when we retire abroad?”


    A. Many Canadians dream of retirement that includes traveling abroad. Some even move abroad for part of the year, most of the year, or give up Canadian residence altogether.

    In the case of Mexico, Marianna, a taxpayer is considered a Mexico resident if he has a permanent home available in Mexico. If they are at home in both Mexico and Canada, the location of their center for vital interests – their personal and economic ties – must be considered.

    The courts usually refer to the article of residence of the OECD model tax treaty in defining the center of vital interests:

    “If the individual has a permanent home in both contracting states, it is necessary to examine the facts to determine with which of the two states his personal and economic ties are closer. His family and social relationships, his occupations, his political, cultural or other activities, his place of business, the place from which he manages his property, etc. are taken into account. The circumstances must be examined as a whole. however, it is evident that special attention should be paid to considerations based on an individual’s personal actions. When a person who has a home in one state builds a second in the other state while keeping the first, the fact that they keep the first in the environment where they always lived, where they worked and where she has her family and possessions, along with other elements, can show that he kept his center of vital interests in the first state. “

    If you sell or rent your home in Canada and establish closer ties with Mexico, you are likely not becoming a Canada resident. There may be tax implications for assets you own when you leave the company. Assets such as unregistered investments are subject to an alienation (sale) and this can trigger capital gains tax. Other assets such as pensions and investments are subject to withholding tax after you leave.

    You’re specifically asking about monthly pensions, Marianna. Recurring payments for Registered Pension Plans (RPP) such as a Defined Benefit Pension (DB) are subject to 15% Canadian withholding tax for a Mexico resident. The same 15% rate applies to recurring payments from the Canadian Pension Plan (CPP), Old Age Security (OAS), and Registered Retirement Plan (RRSP) or Registered Pension Fund (RRIF). A lump sum payment is subject to a withholding tax of 25%.

    Tax on unregistered investments is limited to dividends or fiduciary distributions (mutual funds or exchange traded funds /).ETFs). The rate is 15%. Most Canadian interest earned by a Mexican resident is tax-free.

    Capital gains on a non-resident’s unregistered investment are not subject to Canadian withholding tax.


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