The CRA Takes 25% of Your RRSP When You Move Abroad. Here’s How to Pay Less.
Non-resident withholding tax, treaty rates, and the Section 217 strategy most Canadians never hear about — for Mexico, Portugal, and Thailand.
Somewhere in Chiang Mai right now, a retired Canadian is eating a $4 pad thai at a table overlooking the moat, watching the temple spires catch the last of the afternoon light — and paying for it with the same CPP and RRIF income that barely covered rent back in Ontario. The part that surprised her wasn’t the cost of living. It was what happened to her RRSP before a single dollar left Canada.
The CRA doesn’t stop thinking about you when you move abroad. The moment you become a non-resident, a flat 25% withholding tax kicks in on your RRSP and RRIF withdrawals — no progressive brackets, no basic personal amount, no negotiation. That’s $2,500 gone on every $10,000 you withdraw, before you’ve bought groceries.
But 25% is the default, not the final word. Tax treaties, RRIF conversion strategies, and a little-known provision called Section 217 can bring that rate down significantly — sometimes below 15%, sometimes below 10%. Here’s how each one works — and when to use them.
The Default: Why the CRA Takes 25%
When you leave Canada and sever your residential ties — sell the house, cancel the provincial health card, move your spouse — the CRA reclassifies you as a non-resident. And non-residents play by different rules.
Under Part XIII of the Income Tax Act, CRA automatically withholds 25% at source on most Canadian-source income paid to non-residents. This applies to:
- RRSP withdrawals (any amount)
- RRIF withdrawals (including minimums)
- CPP and OAS payments
- Employer pension payments
- Rental income from Canadian property
- Dividends from Canadian companies
Compare that to what you’d pay as a resident. Inside Canada, RRSP withdrawals face tiered withholding — 10% on the first $5,000, 20% on $5,001-$15,000, 30% above $15,000 — and those amounts are reconciled on your annual T1 return. You might get some back. As a non-resident, the 25% is the final tax. No return, no reconciliation, no refund. Unless you do something about it.
Tool #1: Tax Treaties — Dropping to 15% (Mexico and Portugal)
Canada has tax treaties with over 90 countries, and the ones with Mexico and Portugal contain a provision most Canadians don’t know about until their accountant mentions it: reduced withholding rates on periodic pension payments.
Mexico: 15% on Periodic Pensions
Under the 2006 Canada-Mexico tax treaty, periodic pension payments — CPP, OAS, employer pensions, and scheduled RRIF withdrawals — are capped at 15% withholding instead of 25%. That’s a 40% reduction on every payment.
On $40,000 a year of pension income, that’s the difference between $10,000 withheld and $6,000. The extra $4,000 stays in your account — enough to cover four months of groceries in Mérida, or a year of health insurance.
The catch: Lump-sum RRSP withdrawals don’t qualify. The treaty only covers periodic payments. If you’re planning to draw down your RRSP, converting it to a RRIF and taking scheduled withdrawals is the move that unlocks the 15% rate.
To claim the reduced rate, file Form NR301 with each Canadian payer (your pension plan, your bank, the institution holding your RRIF). They’ll adjust the withholding at source.
Portugal: 15% Above $12,000/Year
The 1999 Canada-Portugal treaty works similarly but with a twist: the 15% rate applies only to periodic pension payments above approximately CA$12,000 per year. The first $12,000 may be subject to even lower withholding.
For a retiree receiving $30,000/year in combined CPP and pension payments, the math works like this: roughly $0 withholding on the first $12,000, and 15% on the remaining $18,000 — about $2,700 total. Compare that to $7,500 at the default 25%.
Important change for Portugal: The old NHR (Non-Habitual Resident) tax program is terminated. New Canadian retirees arriving from mid-2025 onwards face Portugal’s standard progressive income tax rates of 12.5% to 48% on worldwide income, including Canadian pensions. The treaty credit means you won’t be double-taxed, but Portugal is no longer the tax haven it was. Budget accordingly.
Thailand: 25% Stays — But the Treaty Still Helps
Here’s where it gets different. Canada does have a tax treaty with Thailand — signed in 1984, currently in force — but it doesn’t reduce the withholding rate on pensions. The treaty assigns taxing rights to the source country (Canada), meaning Thailand can’t add its own tax on top. But Canada keeps the full 25%.
If you’re choosing between countries partly on tax grounds, this matters. On $40,000 of pension income, you’d pay $6,000 to the CRA from Mexico, roughly $2,700-$6,000 from Portugal, and $10,000 from Thailand. Same income, different bottom line.
That said, Thailand makes up the difference in cost of living. The $4,000 more you pay the CRA from Thailand compared to Mexico might not matter when your rent is $400/month less. Run the full numbers — not just the tax numbers. Our three-country cost comparison puts the living expenses side by side.
| Country | Treaty Rate (Periodic Pensions) | Lump-Sum RRSP | Local Tax on Canadian Pensions |
|---|---|---|---|
| Mexico | 15% | 25% | Progressive (1.92-35%), with treaty credit |
| Portugal | 15% (on amounts over ~$12K/yr) | 25% | Progressive (12.5-48%), NHR is gone |
| Thailand | 25% (no reduction) | 25% | Treaty protects against Thai taxation of Canadian pensions |
Tool #2: Section 217 — The Strategy Most Canadians Miss
This is the one that changes the math for almost every Canadian retiree abroad — and the one most people never hear about until they’ve already overpaid for a year or two.
Section 217 of the Income Tax Act lets non-residents voluntarily file a Canadian tax return and be taxed at graduated rates instead of the flat 25%. If the graduated rate is lower — and for most retirees earning under $58,000 in Canadian pension income, it is — the CRA refunds the difference.
Read that again: you file a return, the CRA calculates your tax as if you were a resident (using the 2026 brackets, starting at 14% on the first ~$58,523), and if that number is lower than what was withheld, they send you a cheque. If the graduated rate is higher, they simply reject the election and the 25% stands. There’s no downside to filing.
When Section 217 Saves You Money
| Total Canadian Pension Income | Approximate Graduated Rate | Savings vs. 25% Flat | File Section 217? |
|---|---|---|---|
| Under $20,000 | ~0-8% (after basic personal amount) | Save $3,400-$5,000+ | Absolutely yes |
| $20,000 – $40,000 | ~10-15% effective | Save $2,000-$6,000 | Yes |
| $40,000 – $58,000 | ~14% | Save $4,000-$6,000 | Likely yes |
| $58,000 – $117,000 | 14-20.5% marginal | Moderate savings | Calculate — depends on specifics |
| Over $117,000 | 26%+ | None — could cost more | Probably not |
The sweet spot: If your total Canadian pension income is under roughly $58,000 — which covers most retirees whose income is CPP, OAS, and a modest employer pension or RRIF — Section 217 almost certainly saves you money. For someone receiving $30,000/year in combined CPP and RRIF payments, the savings could be $3,000-$5,000 annually. That’s not a rounding error. That’s your health insurance paid for.
How to File
- Wait for your withholding slips — your Canadian payers will send NR4 slips showing what was withheld.
- File Form 5013-R (the T1 return for non-residents) with Schedule A (world income statement), Schedule B (federal tax credits), and Schedule C (Section 217 details).
- Deadline: June 30 of the year following the tax year — not April 30. You get extra time. But if you owe money, interest starts accruing from April 30.
- The CRA evaluates whether the election benefits you. If it doesn’t, they reject it and your 25% withholding stands as final tax. No penalty. No downside.
Pro Move: File Form NR5 to Reduce Withholding at Source
Instead of paying 25% all year and waiting for a refund, file Form NR5 with each payer to request reduced withholding from the start. The CRA reviews your expected income and sets a lower rate for the year. NR5 is valid for five years before you need to reapply.
File it by October 1 of the year before you want the reduced rate to take effect. If you’re planning to leave Canada in 2027, file NR5 by October 2026.
Tool #3: The RRIF Conversion Strategy
This one is simple but powerful — and most people learn about it too late.
Tax treaties distinguish between periodic pension payments and lump-sum withdrawals. An RRSP withdrawal is a lump sum. It gets the full 25%, no exceptions, no treaty relief.
A RRIF withdrawal on a regular schedule is a periodic pension payment. In Mexico and Portugal, that means 15% instead of 25%.
The strategy: convert your RRSP to a RRIF before (or shortly after) becoming a non-resident, and take regular scheduled withdrawals. You’re required to convert by December 31 of the year you turn 71 anyway — doing it earlier to access the 15% treaty rate is a planning decision, not a rule-breaking one.
When this matters most: If you have a large RRSP and plan to draw it down over 10-20 years abroad, the difference between 25% and 15% on every withdrawal adds up fast. On $500,000 drawn down over 15 years, that’s roughly $16,500 in tax savings from the conversion alone — before Section 217 adds further reductions.
When it doesn’t help: Thailand. The treaty doesn’t reduce the rate regardless of how you withdraw, so there’s no RRIF advantage on the Canadian side. (There may be Thai tax advantages depending on how remittance rules are interpreted — talk to a cross-border accountant.)
What This Looks Like for a Real Budget
Here’s what these strategies mean in practice for a retiree with $40,000 in annual Canadian pension income, living in each of our three countries:
| Strategy | Mexico | Portugal | Thailand |
|---|---|---|---|
| No planning (25% flat) | $10,000 | $10,000 | $10,000 |
| Treaty rate only (RRIF) | $6,000 | ~$4,200 | $10,000 |
| Treaty + Section 217 | ~$4,500-5,500 | ~$4,000-5,000 | ~$4,500-5,500 |
The difference between “no planning” and “treaty + Section 217” is $4,500-$6,000 per year. Over ten years abroad, that’s $45,000-$60,000. It’s not a loophole — it’s what the tax system was designed for. You just have to file the paperwork.
The Departure Tax — Before You Leave
One more thing the CRA does when you become a non-resident: a deemed disposition. The moment you leave, the CRA acts as if you sold all your non-registered investments — stocks, mutual funds, rental properties — at their current market value. Capital gains are calculated and taxed on your final resident return.
What’s exempt: Your principal residence, RRSP, RRIF, TFSA, and certain pensions. The deemed disposition doesn’t touch your registered accounts.
What’s not exempt: Everything in your non-registered investment account. If you bought $50,000 in Canadian bank stocks and they’re now worth $120,000, the CRA wants tax on that $70,000 gain — even though you haven’t actually sold.
Plan the timing. If your unrealized gains are large, it might be worth selling some positions before departing to control when and how the capital gains hit your return. Our hidden costs of moving abroad guide covers this and other financial surprises to plan for.
Your Action Checklist
6+ Months Before Leaving
- Consult a cross-border tax professional who knows your destination country ($300-$500 initial consultation — worth every dollar)
- Calculate unrealized capital gains on non-registered investments
- Decide: RRSP-to-RRIF conversion timing (before or after departure?)
- File Form NR5 if you want reduced withholding from the start (deadline: October 1 of the year before)
Before Departure
- File your final T1 resident return (includes departure tax calculation)
- Report your departure date to the CRA
- File NR301 with every Canadian payer to claim the treaty rate (pension plan, RRIF institution, banks)
- Cancel ties that trigger deemed residency (provincial health card, home available for use)
- If moving to Mexico, review the Temporary Resident Visa process. For Portugal, see the D7 visa guide
After You’ve Moved
- Track days spent in each country — both the CRA and your destination country may ask
- File a Section 217 return by June 30 of the following year if your income is under ~$58,000
- If you sell Canadian property, notify the CRA within 10 days using Form T2062 ($25/day penalty for late notification, up to $2,500)
- Review your situation annually with your tax professional — treaties and rules do change
The Bottom Line
The CRA’s default 25% withholding is designed for simplicity, not for your benefit. It’s the rate that applies when nobody files anything — and it’s almost always more than you need to pay.
If you’re moving to Mexico or Portugal, converting your RRSP to a RRIF and filing NR301 drops you to 15%. If your income is modest, Section 217 can push you below that. If you’re moving to Thailand, Section 217 is your primary tool — the treaty doesn’t reduce the rate, but graduated filing can cut your effective rate nearly in half.
None of this is complicated. It’s paperwork, done once, with a professional who knows the rules. The payoff is thousands of dollars a year — money that stays in your pocket instead of the CRA’s.
And that’s the kind of math that pays for a lot of $4 pad thai.
Want to see what that money buys? Our retirement budget guides break it down city by city: retired in Mexico on $2,000 CAD/month, retired in Portugal on $3,000 CAD/month, and our 5 cheapest cities for Canadian retirees. For checklists and budget worksheets, visit our free resource library.
This guide is for informational purposes only and does not constitute tax or financial advice. Tax situations are highly individual — what works for one person may not work for another. Consult a qualified cross-border tax professional before making decisions. Tax data sourced from CRA T4058 (2024 edition, verified current as of March 2026), Canada Department of Finance treaty texts, and published tax bracket tables. All amounts in CAD unless noted.
By Taraji Abroad | Move Abroad Rentals
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