What to do with your RRSP and TFSA if you no longer live in Canada?

Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) are key tools in the Canadian savings and investment system. They allow you to effectively set aside money for retirement and other goals with minimal tax liability. However, after emigrating or leaving Canada for an extended period of time, the rules for using them change. This article provides a comprehensive overview, from non-resident status to optimal management strategies, including practical examples and recommendations.

1. Change of status and impact on RRSPs and TFSAs

1.1 Tax status and contribution eligibility

  • RRSP contribution room (the limit on RRSP contributions) accumulates during tax residency. Once you lose your tax resident status, you are no longer eligible to make new RRSP contributions without risking a penalty for excess contributions (1% per month of the amount over the limit).

  • TFSA contribution room also becomes unavailable to non-residents. Each contribution after losing status is classified as excess and is subject to a penalty of 1% of the amount each month until it is withdrawn.

1.2 Keeping accounts open

After emigrating, you can leave your RRSP and TFSA open. Investments will continue to generate income within the tax deferral (RRSP) or tax exemption (TFSA) framework. However:

  • Currency risk and fluctuations in value may reduce the effectiveness of investments.

  • Some banks may designate accounts as “dormant” or close them automatically due to inactivity.

2. Managing your RRSP after leaving

2.1 “Defer until retirement” strategy

Keep your RRSP active until the standard age of 71, when you are required by law to convert it to a RRIF (Registered Retirement Income Fund). This allows you to:

  • Continue tax deferral until you withdraw the funds.
  • Distribute payments each year according to the minimum RRIF rules (5.28% at age 72, increasing each year according to age).

2.2 Conversion to a RRIF and distribution strategy

If you do not plan to return to Canada, converting your RRSP to a RRIF allows you to receive regular income. RRIF distributions:

  • Are taxable as foreign income in your new country of residence.
  • Subject to standard non-resident withholding tax in Canada (25% for non-residents without a tax treaty, or a reduced rate under a tax treaty). You choose the size of your payments in accordance with the minimum requirements, but you can increase them for budget planning purposes.

2.3 Full withdrawal of RRSP

Direct withdrawal of funds from an RRSP before conversion to a RRIF only makes sense in cases of severe financial constraints:

  • Canada: 25% withholding tax (Part XIII withholding).
  • New country: the withdrawn funds must be declared as foreign income with the possibility of taking into account the Canadian tax withheld (foreign tax credit).

3. Managing your TFSA after leaving

3.1 Deferred use

TFSA is unique in that all income, withdrawals, and capital gains are tax-free in Canada forever. If you leave your TFSA open:

  • You do not pay any Canadian tax on the income you receive.
  • When you return to Canada or take short trips, you can use the funds you have saved without any additional procedures.

3.2 Withdrawals — contribution room restoration

Withdrawals from a TFSA are not taxed, and the contribution limit is restored the following year. However, non-residents lose their right to contribute, so the restoration of the limit does not give them the actual opportunity to contribute again.

3.3 Closing a TFSA

To avoid penalties for excessive contributions, non-residents have only one option:

  1. Withdraw funds from the TFSA in full.
  2. Wait until the next calendar year, when the contribution room will increase again, and non-resident status will not allow new contributions but will allow you to avoid penalties for exceeding the limit.

4. Tax consequences and international agreements

4.1 Tax at source

  • RRSP/RRIF: 25% withholding (Part XIII) on payments to non-residents, unless there is an agreement to reduce the rate.
  • TFSA: withdrawals are not subject to withholding in Canada, but may be taxed as foreign income in the new country.

4.2 Tax agreements

Canada has double taxation agreements with many countries. These may:

  • Reduce the withholding rate for non-residents (for example, RRIF payments may be taxed at 15% instead of 25%).
  • Avoid double taxation by allowing Canadian tax withheld to be credited as a foreign tax credit in the new country.

To take advantage of this, you must submit:

  1. NR301 to the payer in Canada.
  2. Certificate of residence from the tax authorities of your country of residence.

5. Practical examples

5.1 Scenario: long-term emigration

Anna, 45, emigrated to Australia. She has an RRSP with CAD 200,000 and a TFSA with CAD 50,000.

  • She leaves her RRSP open, converts it to a RRIF at age 71, and receives regular income.
  • The TFSA remains in a Canadian account, allowing Anna to keep her earnings tax-free, even if she cannot contribute new funds.
  • RRIF payments are taxed as pension income in Australia, with a 15% withholding tax in Canada under the agreement.

5.2 Scenario: small balance and need for liquidity

Bogdan, 32, moved to Poland with a CAD 10,000 RRSP and a CAD 5,000 TFSA.

  • RRSP: decides to withdraw the entire balance, receives CAD 7,500 after a 25% withholding. He will additionally declare this in Poland and receive a foreign tax credit of CAD 2,500.
  • TFSA: withdraws CAD 5,000 without tax withholding, then does not contribute due to non-resident status.

6. Recommendations and final advice

  1. Don't rush to close your RRSP/TFSA immediately after leaving — consider the tax implications and your long-term plans.

  2. Consult with tax experts in both countries, especially if you are planning large withdrawals or converting your RRSP to a RRIF.

  3. Update your contact information with your bank to receive notifications and electronic statements.

  4. Document all transactions for tax returns (foreign tax credit, treaty benefits).

  5. Stay up to date with changes in legislation: from RRSP conversion deadlines to new agreements and currency risks.

RRSPs and TFSAs remain powerful tools even after you leave Canada. Understanding non-residency rules, tax implications, and international mechanisms will help you effectively manage these accounts, minimize losses, and preserve your savings anywhere in the world.