I am retiring abroad next year — what should I sort out first?
Start before the payments begin, because one of the two routes only works in advance. The flat withholding on the gross amount is the default; an application made ahead of time can reduce what the payer takes at source, and that is much easier to arrange before the pension is in payment abroad than to unwind afterwards. So the first task is arithmetic: what your Canadian income for a full year abroad will consist of, and what graduated rates would produce on it. If the graduated result is clearly lower, the advance application is worth making. The elective return is the fallback for years that have already run on the flat basis, and it is filed year by year.
Where do I start if tax has been taken off my pension for years?
With the record, not with the filing. Get the payers’ annual statements for the open years and establish what was actually paid to you and what was actually withheld; a surprising number of these files begin with nobody able to state either figure. Then the arithmetic, year by year: the eligible income for each year, the graduated result on it, and the flat charge already taken. Only then does anything get filed, because the election applies to all the eligible income in a year and can be the wrong choice in some of them. The years the comparison favours get an elective return each, and the years it does not are left alone and documented.
Should I apply to reduce the withholding or just file a return?
Both, because they deal with different periods. The advance application looks forward: it reduces what the payer withholds on future instalments, so there is less to reclaim. The elective return looks back: it re-computes a year already withheld at the flat rate on the gross amount, taxing it at graduated rates instead. Neither substitutes for the other. Where several years have already gone by, the sensible sequence is to compute those years first, since that arithmetic also tells you whether the advance application is justified, then file the returns that help, then put the application in for the year ahead.
Do I need to work out the numbers before I make the election?
Yes, and doing it the other way round is the common mistake. The election applies to all the eligible income for the year, so it cannot be taken for the source where it helps and omitted for the others. That makes it a single decision about a whole year, and the only sound way to make it is to total the year’s eligible income, compute the tax at graduated rates on that total, and compare the result with the flat withholding already taken on the gross amounts. For a modest pension and nothing else, the answer is usually obvious. Where there is a second source, or a one-off amount, it frequently is not.
My spouse and I both have Canadian pensions — do we decide together?
You decide separately, even if you do everything else jointly. The comparison is made on each person’s own eligible income for the year, and it is perfectly common for the election to be worth making for one spouse and not the other, where one has a small pension and little else and the other has several Canadian sources. Start by listing each person’s Canadian income for the year separately and running both computations for each of them. Where both elections turn out to be worth making, the returns are still individual filings, prepared in parallel so that the underlying figures and the payers’ statements agree between them.
Which year do I start with if several are outstanding?
Work from the oldest year that is still open, and take each year on its own numbers. There are two reasons for that order. The practical one is that the earliest years are where statements and records are hardest to retrieve, so they set the pace of the whole exercise. The second is that the years genuinely differ: a year with an unusual amount in it can go the other way from the year before, and the election cannot be applied selectively within a year. Once the open years are computed and the elective returns filed where they help, the advance application deals with the years still to come.
What is Part XIII withholding tax in Canada?
Part XIII is the Canadian charge on certain amounts paid to non-residents — rent, dividends, interest, royalties, pensions and similar passive income. The payer withholds and remits it, and it is a flat charge on the gross payment rather than on profit, which is why a non-resident landlord can be withheld on far more than the net rental result. Treaties reduce the rate and elective returns recover the excess. See the section 216 return.
What does Form W-8BEN actually do?
It tells a US payer that you are not a US person and, where you are entitled, claims the treaty rate on the income they are about to pay you — so withholding comes off at the reduced rate rather than the statutory one. It goes to the payer or the broker, never to the IRS, and it expires, so a stale form is a common cause of over-withholding. Getting it in before payment is the difference between a lower rate and a refund claim. See Form W-8BEN.
