For individuals who are non-residents of Canada, the Canada Revenue Agency provides a method under section 217 of the Income Tax Act in which they can report their pension income in order to potentially lessen their income tax burden.
Canadian payers have to withhold non-resident tax on certain types of income they pay to non-residents, including pension income. This withholding tax is the non-resident’s final income tax obligation to Canada on this income; as a result, the non-resident typically does not have to file a Canadian income tax and benefit return to report it.
Under Section 217, the Canada Revenue Agency permits non-residents to elect to file a Canadian return and report pension income as well as the following types of Canadian-source income:
• Registered retirement savings plan payments;
• Registered retirement income fund payments;
• Death benefits; employment insurance benefits;
• Certain retiring allowances;
• registered supplementary unemployment benefit plan payments;
• most deferred profit-sharing plan payments; and,
• prescribed benefits under a government assistance program;
By making this election, you, as the non-resident in Canada, are able to pay tax on this income using an alternative method. You may be entitled to receive a tax refund of some or all of the non-resident tax withheld.
Section 217 election allows a non-resident to file an income tax return so that they will not be in a worse tax position than if the taxpayer was a resident of Canada. On filing such an election, the non-resident is able to claim the same deductions and credits to which a resident Canadian taxpayer is allowed.
If the amount of non-resident tax withheld is more than that claimed under the election, the Canada Revenue Agency will refund the difference to you. And because the Section 217 election is voluntary, if you would not receive any tax refund from opting in, there is no requirement to do so.
Section 217 may sound straightforward, determining if the election is right for you can be complex. If you do earn pension income, or other sources of income listed in this article, you should speak to a tax professional.
Warren Ferguson, Cl-Associates
