CPP can even be paid into a foreign bank account in a foreign currency. Whether it is paid into a Canadian bank account in Canada or into a foreign bank account elsewhere, the tax implications are the same.
How tax on CPP is applied for non-residents
There is a standard withholding tax rate of 25% that is retained at the source by Service Canada. This assumes the applicant correctly indicates their non-residency on their application form. Withholding tax is generally the only Canadian tax obligation a non-resident has for their CPP pension.
That said, Richard, U.S. residents benefit from a reduced withholding tax rate of 0%. The U.S. allows the same nil withholding tax treatment for Social Security—the equivalent of CPP in the U.S.—for a Canadian resident receiving Social Security.
U.S. residents are taxed on their worldwide income, including CPP. Canada and the U.S. have agreed in their tax treaty to only tax 85% of CPP received by a U.S. taxpayer and 85% of Social Security received by a Canadian taxpayer.
So, assuming you are considered a U.S. resident, you have no withholding tax and no Canadian tax filing obligation for your CPP, Richard. It should be reported on your U.S. tax return, and 15% of it is tax free to you.
Rules for Canadians also receiving a U.S. Social Security pension
If you are also entitled to a Social Security pension, Richard, your CPP may have an impact on it when you apply. This is because of the Windfall Elimination Provision (WEP). This Social Security nuance can cause a reduction in the pension if the pensioner receives a retirement pension for work that they did in another country for which they did not make Social Security contributions.
When you are 65, Richard, you may be able to apply for your Old Age Security (OAS) pension. As a non-resident, the criteria for qualifying for payments while living outside of Canada are:
- You lived in Canada for at least 20 years after turning 18.
- You lived and worked in a country that has a social security agreement with Canada. The time you lived or worked in that country and Canada must be at least 20 years.
You should provide a copy of your NR4 tax slip (Statement of Amounts Paid or Credited to Non-Residents of Canada) to your U.S. accountant so that they can report it on your U.S. tax return, Richard. But again, under the United States-Canada Income Tax Convention, you have no Canadian tax to pay on your CPP as a U.S. resident.
