RRSP Withdrawal Withholding Tax: Residents vs Non-Residents

If you live in Canada, your financial institution withholds 10%, 20% or 30% of an RRSP withdrawal depending on the amount (5%, 10% or 15% in Quebec, plus Quebec tax). If you’re a non-resident, it withholds 25%. For a resident that’s a prepayment: the withdrawal goes on your return and the final tax can be higher or lower. For a non-resident, the 25% is usually the end of it in Canada, and a US resident reports the same withdrawal on the US return too. This page is one piece of our guide to moving from Canada to the US.

How much tax is withheld on RRSP withdrawals?

For a Canadian resident, CRA’s withholding rates depend on the amount you take out: 10% on amounts up to $5,000, 20% on amounts over $5,000 up to and including $15,000, and 30% on amounts over $15,000. In Quebec the federal rates are 5%, 10% and 15%, and Quebec tax is withheld as well.

For a non-resident of Canada, the same CRA page says withholding is 25% unless a treaty reduces it. Here’s how the rate and the final tax line up for each kind of reader.

Who you are	Withdrawal	Canadian withholding	What settles the final tax
Canadian resident (outside Quebec)	Up to $5,000	10%	Your T1 return: income on line 12900, tax withheld claimed on line 43700
Canadian resident (outside Quebec)	Over $5,000 up to $15,000	20%	Your T1 return, same lines
Canadian resident (outside Quebec)	Over $15,000	30%	Your T1 return, same lines
Quebec	Same three bands	5%, 10%, 15% federal, plus Quebec tax	Your returns; Quebec withholding questions go to your institution or Revenu Québec
Non-resident, RRSP lump sum	Any amount	25%	Usually final in Canada; optional section 217 return due June 30
Non-resident in the US, RRIF payments within the periodic limit	Up to the greater of twice the minimum or 10% of the start-of-year value	15% treaty cap	Usually final in Canada; section 217 still optional
US resident, US side	The whole withdrawal	Not applicable	Form 1040 income, foreign tax credit on Form 1116 for the Canadian tax

Is the RRSP withholding tax my final tax?

For a Canadian resident, no. CRA’s withdrawal instructions say to report the RRSP income on line 12900 for the year you withdraw it and claim the tax from box 30 of your T4RSP slip on line 43700. The real tax is whatever your return says at your marginal rate.

CRA’s own rates page warns that the tax withheld “may not always be enough” at your tax bracket, so you can owe more when you file. The reverse also happens: in a low-income year, the withholding can be more than the tax on your return, and the difference comes back as part of your refund. The withdrawal itself is income under ITA 146(8), which includes in income every amount received as a benefit out of an RRSP.

For a non-resident, the answer flips. CRA’s guide for non-residents (T4058) says that when non-resident tax was withheld on income such as RRSP payments, you don’t report it on a Canadian return, and in general the tax withheld is your final tax obligation to Canada on that income.

What’s the RRSP withdrawal tax for non-residents?

Once you’ve stopped being a Canadian resident, the rate is a flat 25% of each RRSP payment under ITA 212(1)(l), whatever the size of the withdrawal. The three resident bands no longer apply. This is Part XIII tax, the same system that covers Canadian dividends, interest and pensions paid to non-residents.

• Your institution needs to know you’re a non-resident to apply the right rate. A claim for a treaty rate, where one exists, is made to the payer on Form NR301, the CRA’s declaration of eligibility for treaty benefits. The Part XIII withholding guide covers how that system works across income types.
• Leaving Canada doesn’t cash out the plan. An RRSP is an “excluded right or interest” under ITA 128.1(10), so the departure-year deemed sale skips it. The 25% applies only when money actually comes out. Our page on the RRSP for non-residents covers keeping, contributing to and converting the account after you leave.

Can the treaty cut the 25% rate to 15%?

Only for periodic pension payments. Article XVIII(2)(a) of the Canada-US treaty caps Canada’s tax at 15% of the gross amount when a US resident beneficially owns a periodic pension payment. The Income Tax Conventions Interpretation Act defines that term for Canadian payments, and it excludes a payment under an RRSP before maturity. So an RRSP lump sum stays at 25%.

That same definition is why converting to a RRIF matters for a US resident.

• RRIF payments can be periodic. A RRIF payment counts as periodic until the year’s payments pass the greater of twice the year’s RRIF minimum amount and 10% of the fund’s value at the start of the year. The payment that crosses that line, and every later one that year, falls back to 25%.
• You can convert after leaving. The plan must mature by the end of the year you turn 71 (ITA 146(2)(b.4)), but you can move it to a RRIF earlier. T4058 says certain amounts, which can include RRSP payments, can go directly to a RRIF without non-resident tax withheld, as long as Form NRTA1 is completed before the transfer.
• A RRIF must pay out. Guide T4040 says a yearly minimum applies starting the year after the year you set up the RRIF.

Whether a RRIF drawdown at 15% beats a single cash-out at 25% depends on your US bracket and how fast you need the money. The lump sum vs periodic comparison runs that math.

How does the US tax an RRSP withdrawal?

If you’re a US resident when the money comes out, the withdrawal is US income as well. IRS Publication 519 says a resident alien is taxed on income from all sources, and foreign income received while a resident is taxable even if it was earned while you were a nonresident. Rev. Proc. 2014-55 says Canadian plan distributions are included in gross income under the section 72 rules, subject to the treaty.

• Growth inside the plan stays deferred. Article XVIII(7) of the treaty lets a US citizen or resident defer US tax on income building up inside a Canadian retirement plan until it’s paid out. Rev. Proc. 2014-55 treats an “eligible individual” as having made that election automatically: someone who filed every required US return, never reported the plan’s undistributed earnings as income, and reported any distributions as if the election were in place. It also made Form 8891 obsolete. Anyone outside that definition has to ask the IRS for consent. Our page on the RRSP on a US return covers the election in more detail.
• Basis is a fact question. Section 72 lets you recover your “investment in the contract” (the premiums or other consideration paid) tax-free. Rev. Proc. 2014-55 doesn’t say whether contributions you deducted in Canada before becoming a US resident count. Article XVIII(1) of the treaty, as amended, exempts in the US any part of a pension that Canada would exclude from taxable income if you lived there, and Canada excludes none of an ordinary RRSP withdrawal. Our example below assumes zero US basis.
• The Canadian tax becomes a credit. Publication 514 says you claim the foreign tax credit on Form 1116, and the credit can’t be more than your US tax multiplied by your foreign taxable income over your total taxable income. Excess foreign tax may carry back or forward. Only the legal and actual foreign tax liability counts, so tax that is reasonably certain to be refunded if you made a claim isn’t creditable.
• Reporting continues. Rev. Proc. 2014-55 leaves FBAR and Form 8938 obligations in place. The IRS comparison of the two puts the FBAR trigger at over $10,000 across foreign accounts at any time in the year, and Form 8938 for a single filer living in the US at more than $50,000 at year-end or $75,000 at any time.

Can a section 217 election get some back?

Sometimes. Section 217 lets a non-resident file a Canadian return and pay tax on eligible income at the rates residents pay. CRA lists most RRSP and RRIF income as eligible, and applies the election only if it’s beneficial, refunding any excess withholding.

• The deadline is firm. CRA’s due dates page puts the filing date for a section 217 return at June 30 of the following year, with any balance owing due April 30. CRA can’t accept the election if you file after June 30, and the withholding then stands as your final tax.
• You can cut withholding up front. CRA’s should-you-elect page says Form NR5, sent by October 1 or before the first payment, can reduce withholding if approved. CRA’s NR5 administrative policy says an approval usually covers five tax years, and you must file a section 217 return for each of those years.
• It interacts with the US credit. Whatever Canada refunds isn’t a foreign tax you paid, so the US credit shrinks with it. Skipping the return doesn’t protect the credit, though: under Treas. Reg. 1.901-2(e)(5), Canadian tax you could have removed with an election generally isn’t creditable, unless the cost of electing would be more than the tax saved. In our read, that makes a section 217 return worth filing whenever it would cut the Canadian tax.

Our section 217 guide prices the break-even.

Worked example: a US resident cashes out an RRSP

The credit limit runs on your average US rate across all your taxable income rather than your top bracket, and part of your deductions is charged against the foreign income, so a Canadian 25% can still leave some US tax due on the same dollars.

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