Tax withholdings on RRSP withdrawal to Italy

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Question

Dear Phil,

I hope this email finds you well. I wanted to follow up on the message I left on chat and provide more context about my situation and inquiries.

As you may recall, I am a dual British/Canadian citizen and currently reside in Italy where I have residency through my British citizenship and enjoy the benefits of a European resident due to the Brexit withdrawal agreement. In 2019, I filed taxes in Canada as I was a resident, worked, and received payment there for several months. However, in 2020, I was a full-time resident in Italy but did not work. Since 2021, I have been freelancing and exclusively paying taxes in Italy.

I still hold a bank account in Canada with some funds and an RRSP, but I no longer have any other ties to Canada, such as property, family, or dependents. Therefore, I am considering closing my Canadian bank account and withdrawing my RRSP funds while I am still working full time as a non-tax resident.

I have a few questions regarding the process, and I was hoping you could help shed some light on them for me. Firstly, I would like to know if it is possible to withdraw RRSP funds as a non-resident. Additionally, if it is possible, what taxes would I be expected to pay in Canada, and how would that work? I have seen figures ranging between 15-25%, but I am not entirely sure what the correct percentage is. Lastly, I am curious to know how the RRSP funds would be treated in Italy.

As a freelancer, I am subject to a cap on yearly earnings depending on my tax bracket. Suppose the RRSP funds are counted as earnings for the tax year. In that case, I would need to plan ahead and withdraw them only when my earnings are under the limit.

I have tried to research these questions myself, but I have been unable to find a complete answer. I would be grateful for any information or leads that you may have to help me navigate this situation.

Thank you for taking the time to read this email and for your assistance.

Best regards, XXXXXXX

Answer

Hi XXXX

I’m certainly not an expert in Italian taxes, however from the reading of the treaty it looks like Canada would tax you at 15% on periodic payments and 30% on lump sum withdrawals. I would assume the withdrawal would be taxed in Italy and the Italian government would give you credit for the Canadian withholding taxes. Once again, this is my assumption.

If your Italian tax rate is relatively low it might make sense to start taking monthly withdrawals at 15% to exhaust the account. If you took a lump-sum at 30% you might not be able to recover all the Canadian tax withheld on your Italian tax return.

Hope that helps.

Phil

 

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