*Rates are subject to change at any time.
Note: We are not required to withhold tax on periodic annuity payments from a matured RRSP.
Requests to reduce withholding tax for Canadian residents
A taxpayer can apply to Canada Revenue Agency (CRA) to have the amount of withholding tax reduced if they can prove that the withholding tax causes undue hardship. For example, if tax is withheld from RPP payments and the taxpayer is obliged to pay a substantial amount of alimony, the withholding tax may cause undue hardship. The hardship arises because the alimony payments are deductible from total income with the result that the taxpayer would have to wait for a refund of the excess tax withheld. There is no government form available for this purpose. If the taxpayer wants to apply for a reduction, they should contact their district tax office with the details of their income and credits. If the application is approved, the tax office will issue a letter to the payor authorizing a reduction in the amount of tax withheld. We must receive a copy of CRA's authorization letter in order to have the tax reduced at the time of the withdrawal.
All withdrawals from unmatured RRSPs (any RRSP in the accumulation stage) are considered lump sum withdrawals and subject to withholding tax on the full amount based on the same scale used for the withholding tax rates for Canadian residents outlined above.
A status Indian with tax exempt income can contact their local CRA district tax office in order to obtain written confirmation from CRA that they have tax exempt income and that their RRSP withdrawals are either subject to a reduction of withholding tax or no withholding tax at all. We will then administer the RRSP according to the written directions provided by CRA.
A T4RSP is issued to the status Indian for all withdrawals.
Withholding tax for non-residents
Withdrawals from an unmatured RRSP (an RRSP in the accumulation stage) are considered lump sum withdrawals and are subject to withholding tax on the full amount. For the correct withholding tax rate for the selected country, refer to the 'Lump sum pension' column in Withholding tax rates around the world.
Periodic withdrawals from a matured RRSP (an RRSP in the payout stage) are considered periodic pension payments. Different rates may apply to countries which have a bilateral tax agreement with Canada. At the present time, Canada has treaties with more than fifty other countries. For the correct withholding tax rate for the selected country, refer to the 'Periodic pension' column in Withholding tax rates around the world.
Requests to reduce withholding tax for non-residents
A non-resident with certain types of income can make an election to file a Canadian tax return for amounts paid or credited by a Canadian payor (e.g. Sun Life Assurance Company of Canada). This benefits the non-resident if the effective personal rate of tax they would pay when filing a Canadian return would be lower than the tax withheld at source. The following types of income qualify for the election:
- Superannuation or pension benefit
- Retiring allowance
- Employment Insurance (EI) benefit
- Registered Supplementary Unemployment benefit plan payments
- RRSP annuity or lump sum benefit
- Amounts out of an RRIF
- Amounts out of a DPSP
- Benefits under Automotive Products Agreement
- Benefits under the Labour Adjustment Benefits Act
- Amounts out of a Retirement Compensation Arrangement (RCA)
To determine if the non-resident can elect to file a Canadian tax return, complete a form NR5 (Application by a Non-Resident of Canada for a Reduction in the amount of Non-Resident Tax Required to be Withheld). This form is available from your local district taxation office and is in a format that totals all sources of income, subtracts deductions or credits allowed and then calculates the tax payable. If the tax payable as calculated on the NR5 is less than the amount required to be withheld at source, CRA reduces the amount to be withheld according to a percentage formula. The taxpayer must initiate this by submitting a written signed request for a reduction in withholding tax along with the completed and signed form NR5 to the local district taxation office.
When CRA approves the request, they notify all payors from whom the non-resident expects to receive qualifying payments that they should withhold a specific lesser sum of tax. Once the payor has paid the amount estimated by the taxpayer, tax will be withheld at the full rate on all subsequent payments.
The taxpayer needs to send a signed letter to CRA along with a completed Canadian tax return within six months after the end of the calendar year. The letter should state that the non-resident taxpayer elects to file as a Canadian resident. The taxpayer then receives a refund of the excess withholding tax or is required to pay the balance owing, depending on the circumstances.
If the non-resident does not file an income tax return in Canada within six months from the end of the calendar year, CRA will:
- Assess the non-resident for the whole amount of tax which should have been withheld, and
- Notify the Canadian payors to begin withholding tax at the prescribed rate.
As of January 2011, the form NR5 will only have to be filed once every 5 years. For more information, see Form NR5 - 5 -Year Administrative Policy. This procedure will only be effective for relatively small amounts of the types of income specified above. If the federal tax payable on the NR5 exceeds the total of all amounts withheld, there will not be an authorized reduction.