withholding tax on RRSP - What age? | Page 2 | RRSPs and RRIFs | Discussion forum

Norman1, re our earlier discussion about withholding tax and tax withholding, it should be noted there are in fact some cases where withholding taxes are actually taxes, not just tax prepayments - e.g. a family member met two former federal civil servants who have established residence in Cayman Islands (thus they don't file Canadian income tax returns) and they have 25% withheld from their gov't pensions as withholding taxes. An average tax rate of 25% is higher than most Canadians end up paying. There is no tax treaty with Cayman, no relief for them.

Bill said
Norman1, re our earlier discussion about withholding tax and tax withholding, it should be noted there are in fact some cases where withholding taxes are actually taxes, not just tax prepayments - e.g. a family member met two former federal civil servants who have established residence in Cayman Islands (thus they don't file Canadian income tax returns) and they have 25% withheld from their gov't pensions as withholding taxes. An average tax rate of 25% is higher than most Canadians end up paying. There is no tax treaty with Cayman, no relief for them.  

Tax withheld can sometimes match the tax owed. If I complete the US non-resident alien return (Form 1040NR), I will find that I owe the IRS a reduced 15% tax (thanks to the Canada-US tax treaty) on dividends from US companies. That matches the reduced 15% tax withholding on those dividends paid to Canadian recipients.

A tax treaty can change the Canadian taxes owing. But, non-residents can file a Canadian tax return regardless of a tax treaty. So, I don't think it is the lack of a tax treaty with the Cayman Islands that denies them relief. They likely would have been able to use the 25% taxes paid to Canada as a credit against their Cayman Islands income taxes.

I think the challenge is that the Cayman Islands has a personal income tax rate of 0%! So, there's no Cayman Islands personal income taxes to apply the 25% Canadian taxes paid against.

With holding tax stops when you take the mandatory age % from a RRIF. But at years end you may or likely will have to pay income tax on the withdrawal.

Bill said
"I don't think it is the lack of a tax treaty with the Cayman Islands that denies them relief." Norman1, are you saying if there's no treaty a country where you file is going to give you credit for taxes you paid to another country?

Canada does credit foreign taxes paid against Canadian income taxes on that foreign income, with or without a tax treaty. I'm not sure every country does.

Michael Atlas' article Canadian Foreign Tax Credits and Tax Treaties-MYTH VS. REALITY explains that the foreign tax credits come from the Income Tax Act and not any particular tax treaty.

Also I note the withholding taxes I pay to USA (on my USA-based investments) are a credit on my Canadian return, without limit, so they can even contribute to the refund cheque I end up getting, i.e. they are not just a credit against my taxes, they will actually be paid out to me if I'm entitled to a refund. So I don't see how a lower income tax rate in the country of filing would be an impediment to getting it all back, but maybe this is the case in my case because there's a treaty between USA and Canada. …

In Canada, the federal and provincial foreign tax credits are limited to the approximate amount of the Canadian income taxes on that foreign income. For example, there is a calculation of the Canadian federal taxes on the foreign income on form T2209.

There's no refund from the Canadian government for higher foreign taxes paid if they exceed the Canadian income taxes on that foreign income.