Part XIII Withholding Tax After a Client Leaves Canada: Dividends and RRSP and RRIF Payments
Published by 
Steffan Kharmaaiarvi, founder
Once a client is no longer resident in Canada, Canadian tax on their Canadian investment income stops being a line on a T1 return and becomes Part XIII withholding, taken at source by the broker or plan administrator. The statutory rate is 25%; a tax treaty with the new country of residence usually cuts it, but differently for dividends, periodic RRSP or RRIF payments and lump-sum withdrawals. This note sets out the rules from the Income Tax Act and three treaty texts (United States, United Kingdom, Australia), an illustrative worked example and what Borderfolio shows. It is decision support for professional review, not tax advice.
The statutory rate: 25%
Section 212 of the Income Tax Act charges every non-resident a 25% income tax on listed amounts paid or credited by a Canadian resident, including:
- Dividends from a corporation resident in Canada (s. 212(2)).
- RRSP payments that would be income to a resident (s. 212(1)(l)) and RRIF payments likewise (s. 212(1)(q)).
- Interest only when paid to a non-arm's-length person or as participating debt interest (s. 212(1)(b)). Ordinary interest from an arm's-length Canadian bank or bond is not caught.
RRSPs and RRIFs are not deemed sold on departure (see departure tax); Part XIII is how Canada taxes them afterwards.
Treaty rates, read from the treaty texts
CRA's Information Circular IC76-12R8 no longer carries a country-by-country rate table, so the rates below are read from the treaties themselves:
| New residence | Portfolio dividends | Periodic RRSP/RRIF payments | Lump sums |
|---|---|---|---|
| United States | 15% (Art. X(2)(b)) | 15% of the gross payment (Art. XVIII(2)(a)) | 25% statutory: the cap covers periodic payments only |
| United Kingdom | 15% (Art. 10(2)(b), 2003 Protocol) | Taxable only in the UK (Art. 17(1), 2003 Protocol) | 25% statutory: Art. 17(1) speaks of periodic payments |
| Australia | 15% (Art. 10(2)) | The lesser of 15% and the tax a Canadian resident would pay (Art. 18(2)) | Not settled by the text: Art. 18(2) has no periodic qualifier |
The UK treaty's definition of pension (Art. 17(3) as replaced) includes any payment under a superannuation, pension or retirement plan; Borderfolio reads RRSP and RRIF payments as within it, and treats a lump sum at the statutory rate.
Periodic or lump sum
The treaties' periodic-pension caps depend on what counts as periodic. The Income Tax Conventions Interpretation Act, s. 5, defines a periodic pension payment arising in Canada by exclusion: not an RRSP payment before maturity or a commutation, and not RRIF payments in a calendar year beyond the greater of twice the year's minimum amount (computed as if C in the formula were nil) and 10% of the fund's fair market value at the start of the year. RRIF withdrawals within that limit are periodic; an RRSP withdrawal before maturity is not.
Getting the treaty rate: NR301
The payer applies a treaty rate on the basis of the non-resident's declaration of eligibility, Form NR301. IC76-12R8 (para. 19) says that if a non-resident refuses to certify beneficial ownership, residence or treaty eligibility when asked, the payer should withhold the full statutory rate.
The section 217 election
For pension-type income, including RRSP and RRIF payments, a non-resident can elect under s. 217 to file a Canadian return within six months after the end of the year. No Part XIII tax is then payable on those benefits (s. 217(2)); the income is taxed under Part I instead, computed as s. 217(3) sets out. Whether that is lower depends on the client's other income. The election covers the benefits listed in s. 217(1), not dividends.
A worked example (illustrative)
A client moves from Canada to the UK. In the first year as a non-resident, round illustrative figures in CAD:
- Canadian dividends from shares in a non-registered account: CAD 8,000. With NR301 on file, UK treaty rate 15%: 8,000 × 15% = CAD 1,200 withheld. Without it: 8,000 × 25% = CAD 2,000.
- RRIF payments: fair market value at 1 January CAD 400,000; illustrative minimum amount for the year CAD 20,000. The periodic limit is the greater of 2 × 20,000 = 40,000 and 10% × 400,000 = 40,000, so CAD 40,000. A withdrawal of CAD 30,000 is within it and periodic: under Art. 17(1) it is taxable only in the UK, CAD 0 Canadian withholding.
- An extra RRSP withdrawal of CAD 50,000 before maturity is not periodic: 50,000 × 25% = CAD 12,500 withheld, unless the client makes the s. 217 election.
Had the client moved to the US instead, the same RRIF payment would bear 30,000 × 15% = CAD 4,500. How the new country taxes this income, and credits Canada's tax, is a separate question.
What Borderfolio shows
With a planned destination on a Canadian resident's profile, the Cross-Border tab adds Canadian withholding after leaving:
- Rates under that treaty for dividends, periodic RRSP/RRIF payments and lump sums, read from 14 treaty texts (including the US, UK, Australia, New Zealand, France, Ireland, Germany, the Netherlands, Switzerland, Spain, Italy, Portugal, Singapore and the UAE), each with its article and link. A rate the text does not settle is shown as not settled, never estimated; a country without a treaty on file shows the statutory 25%.
- Amounts: the client's yearly Canadian dividends in non-registered accounts and the tax withheld on them, and the RRSP/RRIF accounts with their values.
- Paperwork: NR301 to each payer, NR4 slips, the NR4 slips payers issue, and the optional s. 217 election.
Not modelled: the new country's tax on this income and its credit for Canada's withholding; distributions of Canadian funds, which mix income types and are not split. See planning a client's relocation and the relocation documentation.
Frequently asked questions
What is the Part XIII withholding rate on RRSP withdrawals for non-residents?
The statutory rate is 25% (s. 212(1)(l)). A treaty can lower it for periodic payments, for example to 15% for a US resident; a lump-sum withdrawal before maturity is not periodic and generally stays at 25%.
Are RRIF payments to a UK resident taxed in Canada?
Under Article 17(1) of the Canada–UK treaty as amended in 2003, periodic pension payments are taxable only in the country of residence. RRIF payments within the periodic limit are therefore not withheld; amounts above it are.
What counts as a periodic RRIF payment?
Payments in a calendar year up to the greater of twice the minimum amount and 10% of the fund's value at the start of the year, under s. 5 of the Income Tax Conventions Interpretation Act.
Does Canada withhold tax on bank interest paid to a non-resident?
Not on ordinary arm's-length interest. Part XIII applies to interest only when it is paid to a non-arm's-length person or is participating debt interest (s. 212(1)(b)).