Can You Collect CPP and OAS While Living Abroad?
Retirement planning is challenging enough if you decide to remain in Canada during your golden years. But what happens if you choose to leave Canada and become a non-resident. Will you still file a Canadian income tax return? Will another country tax foreign pension income? And how about CPP and OAS? Can you still collect them while living abroad? I’ll answer these questions and more as we explore the ins and outs of managing Canadian pensions as a non-resident.
What Is the CPP?
The Canada Pension Plan (CPP) is a monthly retirement benefit designed to replace 25% of your earnings. The CPP is known as the Quebec Pension Plan (QPP) in Quebec. While you can receive CPP benefits as early as age 60, you must delay until age 65 to receive an unreduced benefit. An increased CPP payment is available up to age 70 if you delay your benefit further.
Can You Collect CPP While Living Abroad?
Unlike other pensions, there is no residency requirement to receive the CPP. In other words, you will continue to receive CPP payments if you decide to live abroad. The government bases CPP benefit amounts on the contributions made by Canadian workers throughout their careers.
CPP Survivor Benefit
The CPP survivor benefit is paid to the spouse, common-law partner, or dependent children of a deceased contributor. Like the regular CPP, the survivor benefit continues even if the recipient moves out of Canada permanently.
How Is the CPP Taxed?
Upon retirement, if you relocate to one of the 94 countries sharing a Tax Treaty with Canada, you may receive preferential tax treatment on your CPP benefits. Otherwise, a flat withholding tax of 25% is deducted from your monthly CPP payment.
What Is OAS?
Old Age Security (OAS) is an income-tested government retirement benefit that you can collect alongside the CPP. However, unlike the CPP, you must reach 65 years of age before collecting OAS. The maximum OAS monthly payment at this writing is $642.25, but how much you receive will depend upon various factors, including your annual income and how long you live in Canada (or certain other countries) after age 18.
For example, if you lived in a country with which Canada has a social security agreement, you may be able to count your years of residency towards your CPP and OAS benefits. One such country is the U.S., where the Agreement on Social Security with Canada has been existence since 1984.
Understanding the OAS Clawback
If you are familiar with OAS, you may have heard the term OAS clawback, also known as a Recovery Tax. Here’s how it works.
The Old Age Security pension provides a basic pension for Canadians 65 and over. Most retirees will have additional income on top of the OAS, such as CPP, a company pension, or income from a registered retirement income fund (RRIF). Of course, some retirees have more sources of income than others.
Because the OAS is non-contributory (you don’t contribute to it during your working years), there is an income threshold at which the benefit amount gets clawed back until the OAS becomes zero.
The clawback for 2022 (July 2022-June 2023) is applied to a total income of over $79,845. For example, from all sources, let’s say you had an overall income of $95,000 in 2021. The Recovery Tax, and its impact on your monthly OAS benefit, would be calculated as follows:
$95,000 – $79,845 = $15,155
$15,155 X 15% Recovery Tax = $2,273.25
$2,273.25/12 months = $189.44
Between July 2022 and June 2023, the CRA would reduce your monthly OAS payment by $189.44. This gets recalculated yearly, so you may receive more or less OAS if your income rises or falls each year.
OAS Maximum Income Threshold
The OAS maximum income threshold for the 2021 tax year is $129,075. If your income exceeds this amount, your OAS benefit will be reduced to zero for the year ahead (July 2022-June 2022).
While none of these calculations determine whether you will receive OAS while living outside of Canada, it’s good to know how the pension works so that you can include it in your retirement income planning. Now, let’s look at when you can and cannot collect OAS as a non-resident of Canada.
Can You Collect OAS While Living Abroad?
If you move away from Canada after you retire, you can continue to collect OAS if you are at least 65 years old and resided in Canada for a minimum of 20 years after you turned 18 (40 years if required for a full OAS pension).
If you lived in and earned income in a country with a Social Security Agreement with Canada, you may still qualify for OAS even if you don’t meet the 20-year requirement. Alternatively, by ensuring that you never leave Canada for more than six months in a calendar year, you can continue to receive OAS payments.
How Is the OAS Taxed?
If you become a non-resident after you retire but don’t move to one of the 94 Canadian Tax Treaty countries, the government will tax your OAS benefit at a withholding tax rate of 25%, just like your CPP. However, that tax rate might be reduced or waived altogether if you move to a Tax Treaty country. For example, Canadian snowbirds who move to the U.S. will benefit from zero withholding tax being applied to their OAS and CPP payments.
NEW! Increased Old Age Security Pension at Age 75
New for 2022, the Canada Revenue Agency is increasing OAS benefits by 10% for seniors 75 and over. This increase takes effect with the July 2022 payment and is automatically added to your OAS, so there’s no need to apply for it.
How About the Guaranteed Income Supplement (GIS)?
Low-income Canadians can receive an additional benefit, called a Guaranteed Income Supplement, or GIS. Unlike the OAS, the GIC benefit is not taxable.
The GIS is only available to residents of Canada, so if you receive a GIC supplement and become a non-resident, you will lose the benefit. The CRA can reinstate the payment if you return to Canada and still qualify.
How Can I Receive my CPP and OAS In Another Country?
At the risk of sounding obvious, there are two ways to receive your CPP and OAS payments if you leave Canada: direct deposit into your bank account and cheque via mail. Keep in mind that if you receive a direct deposit, a foreign exchange transaction will occur before your funds arrive in the local currency. The CRA sends cheques in Canadian dollars.
What Happens to My Company Pension If I Leave Canada?
If you receive a defined benefit or defined contribution pension benefits from a previous employer, you will keep these funds even if you become a non-resident of Canada. It’s your hard-earned money, after all. That said, your pension funds will be subject to the same tax rules as your CPP and OAS should you cease to become a Canadian resident.
As I mentioned earlier, this can take the form of a 25% withholding tax, or less, if you move to a Tax Treaty country. Make sure you study the Tax Treaty with Canada for any country you think you might want to settle in before making your final decision.
Final Thoughts Collecting CPP and OAS Outside of Canada
Can you collect Canada pension while living abroad? In many cases, the answer is yes. But there are several excluding factors, so it’s a good idea to prepare well before you move outside of Canada. It’s essential to determine your residency status, so you’re not simultaneously paying income tax in two countries.
Because the tax implications are different for everyone, I recommend that you consult an accountant before making any final plans on a retirement destination. And remember, if you want to travel abroad but still maintain your Canadian residency status, make sure you stay in Canada for a minimum of 6 months per year.