Part XIII Withholding: What Gets Withheld When You Leave Canada?

Part XIII of the Income Tax Act (sections 212-218) imposes a withholding tax on certain types of Canadian-source income paid to non-residents. The default rate is 25% of the gross payment. The Canada-US tax treaty reduces the rate on most categories: 15% on periodic pension payments, 15% on dividends (5% for significant shareholders), 0% on most interest, and 0% or reduced rates on various other income types.

When you leave Canada and become a non-resident, every Canadian payer (your bank, your RRSP custodian, your pension plan, your former employer, the tenant of your rental property) must start withholding Part XIII tax on payments to you. The withholding is the final Canadian tax on that income; you generally do not file a Canadian return to report it (unless you elect to under Section 216 or 217, which can produce a lower effective rate).

Treaty-reduced rates for US residents

For a Canadian non-resident who is a US resident, the Canada-US tax treaty reduces Part XIII withholding as follows:

Income type	Default Part XIII rate	Treaty-reduced rate (US residents)	Treaty article
Periodic pension/annuity payments	25%	15%	XVIII(2)
Lump-sum pension payments	25%	25% (no reduction for lump sums, but see Section 217)	XVIII(2) note
RRSP withdrawals (periodic)	25%	15%	XVIII(2)
RRSP withdrawals (lump-sum)	25%	25% (but graduated rate tables may apply)	-
RRIF withdrawals (minimum amount)	0% (domestic law exempts minimum)	0%	-
RRIF withdrawals (excess over minimum)	25%	15% (periodic)	XVIII(2)
Dividends (general)	25%	15%	X(2)(b)
Dividends (substantial shareholder, 10%+)	25%	5%	X(2)(a)
Interest (arm’s-length)	25%	0%	XI(1)
Interest (related-party, non-arm’s-length)	25%	0% (post-2008 treaty protocol)	XI(1)
Rental income (gross)	25%	25% (no treaty reduction, but Section 216 election available)	VI
Royalties	25%	0% (copyright), 10% (patent/know-how)	XII
Management fees	25%	0% (if Article VII business profits apply)	VII
CPP/OAS	25%	0% (taxable only in US)	XVIII(1)
Estate/trust income	25%	15% (generally, depends on income type)	Various

How to establish your treaty rate

The payer needs to know you are a US resident to apply the treaty rate instead of the 25% default. Two mechanisms:

NR301 (Declaration of Eligibility for Benefits Under a Tax Treaty for a Non-Resident Taxpayer). File this form with each Canadian payer (your bank, brokerage, pension administrator, RRSP custodian). It declares your country of residence and the treaty article you are relying on. The payer then withholds at the treaty rate.

NR5 (Application by a Non-Resident of Canada When Completed for a Reduction in the Amount of Non-Resident Tax Required to Be Withheld). For pension and RRIF income, you can apply to CRA directly for a reduced withholding rate. CRA issues a letter to the payer authorizing the reduced rate. This is more formal than the NR301 and involves CRA review.

If you do not file the NR301 or NR5, the payer withholds at 25%. You can recover the excess withholding by filing a Canadian non-resident return, but it is easier to establish the treaty rate upfront.

Section 216: rental income

The 25% gross withholding on rental income is often higher than the tax that would be owed if the rental income were taxed on a net basis (after expenses). Section 216 of the ITA allows a non-resident to elect to file a Canadian return reporting the net rental income (gross rent minus expenses: mortgage interest, property taxes, maintenance, property management, depreciation). The tax on the net income at graduated rates is usually much less than 25% of gross rent.

To use Section 216, you must file the return within two years of the end of the taxation year. You can also file an NR6 form before the year starts, which allows the payer (your property manager or tenant) to withhold based on estimated net income rather than 25% of gross, reducing the cash flow impact.

Example: gross rent of $30,000, expenses of $18,000, net rental income of $12,000. Part XIII at 25% of gross = $7,500. Section 216 tax on $12,000 net at graduated rates = approximately $1,800 (federal only, no provincial tax for non-residents). The Section 216 election saves $5,700.

Section 217: pension and RRIF income

Section 217 allows non-residents to elect to file a Canadian return and be taxed at graduated rates (as if they were residents) on certain Canadian-source income, primarily pension income, RRSP/RRIF withdrawals, CPP, OAS, and certain death benefits. The election is beneficial when the graduated rate on the income is lower than the flat Part XIII rate.

The catch: Section 217 requires you to report your worldwide income on the Canadian return (to determine the appropriate graduated rate), even though only the Canadian-source income is actually taxed. If your worldwide income is high, the graduated rate on the Canadian pension income may be higher than the Part XIII rate, and the election is not beneficial.

When Section 217 helps: when your total worldwide income is low enough that the graduated rate on the Canadian pension/RRIF income is below the 15% treaty rate (or 25% default rate). This is common for retirees whose primary income is the Canadian pension itself, with relatively little other income.

When Section 217 does not help: when your worldwide income pushes the graduated rate above the withholding rate. A retiree with $100,000+ of US-source income plus $30,000 of Canadian RRIF income may find that the graduated rate on the RRIF income (when stacked on top of worldwide income) exceeds 15%.

RRIF minimum withdrawals: the 0% rate

A special rule in domestic law (not the treaty) exempts the RRIF minimum withdrawal from Part XIII withholding. If you withdraw only the required minimum from your RRIF each year, Canada withholds zero. Any amount above the minimum is subject to Part XIII at 25% (reduced to 15% by treaty for periodic payments to US residents).

This makes the RRIF minimum an efficient income source for Canadian non-residents: no Canadian tax withheld on the minimum, and the US taxes the withdrawal as ordinary income with an FTC for any Canadian tax (which is zero on the minimum). The US tax is the only tax.

Amounts above the minimum lose this benefit and are subject to the 15% treaty withholding. For cash flow planning, withdrawing only the minimum (or close to it) is tax-efficient from the Canadian withholding perspective. The lump-sum vs periodic withdrawal analysis covers the US-side math on the same decision.

What you need to do when you leave

When you become a non-resident:

1. Notify all Canadian payers of your change in residency. Provide each payer with an NR301 (or NR5 for pensions/RRIFs) to establish the treaty-reduced withholding rate.
2. Notify CRA of your departure (you can do this on your final Canadian resident return, or by calling CRA to update your status).
3. Update your address with Canadian financial institutions to your US address. This triggers the payer’s non-resident withholding obligation.
4. File your final Canadian resident return (the return for the year you became a non-resident, reporting worldwide income to the date of departure and Canadian-source income for the remainder of the year).
5. Set up Section 216 (rental income) if you have Canadian rental property. File the NR6 before the year starts to reduce withholding to estimated net income.

What should I do next?

If you are leaving Canada, identify every Canadian payer (bank, RRSP/RRIF custodian, pension plan, rental tenant, investment account). File NR301 or NR5 with each one. If you have rental property, file NR6 for the current year to reduce gross withholding. File Section 216 and consider Section 217 at tax time.

• Leaving Canada permanently: a tax checklist, the full departure checklist
• CPP and OAS received in the US, the treaty treatment that eliminates Canadian withholding on CPP/OAS
• Does the OAS clawback apply if I live in the US?, tied to the Part XIII exemption
• 401(k) and Roth IRA when moving back to Canada, the reverse direction

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.