Once you're a Canadian non-resident, Canada taxes you only on Canadian-source income — not on everything you earn around the world. Here's exactly what that means, what gets taxed, what doesn't, and how to make sure you're not taxed twice.
This was the question we kept coming back to before we made the move. Would Canada keep taking half our income even if we weren't living there? The answer turned out to be much more manageable than we feared. Canada has a territorial system for non-residents — it only taxes the income that originates in Canada. Our CPP and RRIF withdrawals still have Canadian tax withheld. Our spending money from Malaysian bank interest and any local income is none of Canada's business. That distinction — Canadian-source versus foreign-source — is the key to understanding the whole picture.
Canadian tax law divides the world into residents and non-residents. Residents pay Canadian tax on worldwide income. Non-residents pay Canadian tax only on Canadian-source income. That's the fundamental switch that happens when you move abroad and sever your residential ties with Canada.
Canadian-source income is income that originates in Canada: your government pension, withdrawals from registered accounts held at Canadian institutions, rent from a Canadian property, dividends from Canadian companies. Income that originates abroad — a pension from your new country's system, investment returns on foreign accounts, any local income — is not Canadian-source income and is not taxed by Canada.
This is different from how Canada taxes its residents. As a resident, Canada taxes everything you earn globally and then gives you a foreign tax credit for taxes paid abroad. As a non-resident, Canada steps back and only takes its cut on the money that came from within its borders.
Canada doesn't send non-residents a tax bill and wait for them to file a return. Instead, it collects tax on most Canadian-source passive income through withholding at source — the payer (Service Canada, your bank, your RRIF provider) deducts the tax before sending you the money. You receive the net amount. This is called Part XIII tax.
The standard withholding rate is 25% on most types of passive income. If you live in a country with a tax treaty with Canada, the rate is typically reduced — most commonly to 15% on pension and RRIF payments, and sometimes lower on other income types. You apply for the reduced rate using Form NR5.
💡 Canadian interest income is typically exempt from Part XIII withholding for non-residents — a useful fact if you hold Canadian high-interest savings accounts or GICs. The 0% rate applies to most arm's length interest payments. Check with your financial institution to confirm your specific situation.
💡 RRIF periodic vs lump-sum: This distinction matters enormously. Periodic RRIF payments — regular monthly or annual withdrawals — are taxed at 15% even without a treaty (and at the treaty rate in treaty countries). Lump-sum RRSP withdrawals are always 25% with no treaty reduction available. If you plan to draw down your registered accounts while abroad, converting to a RRIF and taking periodic payments before you leave is one of the most valuable pre-departure tax moves available to you.
Let's make this concrete. Take a couple retiring to Portugal — which has a tax treaty with Canada. They receive combined CPP of CAD $1,600/month and OAS of CAD $1,400/month, plus RRIF withdrawals of CAD $1,500/month. They own a condo in Toronto rented for CAD $2,000/month. Here's their Canadian tax picture.
Everything they earn in Portugal from local investments, any part-time activity, or other sources is outside Canada's jurisdiction entirely — Portugal's tax system handles that. Canada is done once it's withheld on its own income.
Here's the complication that catches many retirees off guard: your new country of residence may also want to tax your CPP and OAS. Once you become a tax resident of another country — which typically happens after 183 days — that country taxes your worldwide income, including income that Canada has already withheld on. Without a tax treaty, you could theoretically pay Canadian withholding tax AND full income tax in your new country on the same CPP payment. This is double taxation.
Tax treaties fix this. A tax treaty between Canada and your new country allocates taxing rights and provides relief mechanisms. In most Canadian treaties, pension income is either taxed exclusively by one country, or the tax paid in Canada is credited against the tax owed in your new country. The result is that you pay the higher of the two rates, not both rates added together.
⚠️ No-treaty countries need local tax advice. Many popular retirement destinations — Ecuador (territorial tax system — may not tax foreign pensions in practice), Costa Rica (territorial system — foreign-source income generally exempt), Argentina (worldwide tax for residents — no credit mechanism) — handle foreign pension income very differently. Even without a formal treaty, some countries exempt foreign pension income entirely under their domestic law. This requires advice from a local tax professional in your destination country, not just a Canadian CPA.
Here's a scenario that catches Canadians who don't plan carefully: you move abroad but maintain strong ties to Canada — you keep the family home, your spouse stays in Ontario, you keep your OHIP card and bank accounts. You spend seven months a year in Southeast Asia and five months in Canada.
In this situation, the CRA may determine you are still a factual resident of Canada — meaning Canada taxes your worldwide income as if you never left. You get no benefit from the non-resident withholding system. You file a full Canadian tax return every year on everything you earn globally. And you pay provincial tax on top of federal tax. This is usually the worst possible tax outcome for a retiree abroad.
Proper non-residency requires genuinely severing your primary residential ties — selling or renting out your Canadian home, having your spouse join you abroad (or at minimum not being the reason they stay), and eliminating secondary ties where practical. Half-measures often produce the worst result: you think you're a non-resident but the CRA disagrees.
✓ The sweet spot for most Canadian retirees abroad: become a genuine non-resident, live in a treaty country, and pay 15% Canadian withholding on CPP/OAS/RRIF — with your new country crediting that tax against what it owes. Total effective tax on Canadian pension income often ends up similar to or less than what you'd pay as an Ontario resident. Combine that with zero Canadian tax on your foreign-source income, and the picture can be significantly better than staying in Canada.
If you own Canadian rental property while living abroad, the rental income is subject to 25% withholding at source — your tenants' property manager must remit 25% of the gross rent to the CRA monthly. However, you can elect under Section 216 to file a Canadian tax return on the net rental income (rent minus expenses) instead of paying 25% on the gross. This is almost always more favourable and lets you deduct mortgage interest, property taxes, maintenance, and depreciation.
If you sell Canadian real estate as a non-resident, additional rules apply: the buyer is legally required to withhold 25% of the purchase price (not just the gain — the full price) and remit it to the CRA unless you obtain a CRA clearance certificate in advance. You must notify the CRA of the sale within 10 days. Failing to get the clearance certificate can lock up enormous amounts of your sale proceeds while CRA processes the paperwork. Plan well ahead if you're selling Canadian property from abroad.
Most non-residents with only passively-withheld income (CPP, OAS, RRIF) do not need to file a Canadian tax return. The withholding at source is considered the final tax obligation. You receive your NR4 slip each February showing what was paid and withheld, and that's it — no return required.
You do need to file a Canadian return if: you have Canadian employment income, you have rental income and want to use the Section 216 election, you're making the Section 217 election to potentially reduce your total withholding, you sold taxable Canadian property, or the CRA has approved your Form NR5 and requires a return.
The departure year is always more complex — that year you file a full return reporting your worldwide income up to the departure date, plus any deemed disposition triggered by leaving. This is the one year where a cross-border CPA is genuinely essential.
We found the ongoing annual picture surprisingly clean once our first year was sorted. Canada withholds on our CPP and RRIF automatically — we see it on our NR4 slips, and we don't file a Canadian return. Malaysia doesn't tax our CPP or RRIF (Canada-Malaysia tax treaty + Malaysia's territorial tax system means foreign-source income is generally not taxed). The departure year return was the big one — we worked with a cross-border CPA for that and it was worth every dollar. After that, the annual situation is straightforward.
The complete picture
RRSP, RRIF, TFSA, departure tax, CRA residency rules, provincial health — everything in one place.
Read the Canadian Guide →Sources & Disclaimer: This article is for informational purposes only and does not constitute tax or financial advice. Data sourced from CRA T4058 Non-Residents and Income Tax 2024, CRA 5013-G Non-Residents Guide 2025, TaxRavens Canada Income Tax 2026, CountryTaxCalc Canada Expat Guide 2026, WealthNorth Canadian Retirees Living Abroad 2026, Money.ca April 2026. Tax rules change — always verify at canada.ca and consult a cross-border CPA for your specific situation. Capital gains inclusion rate is 50% for 2026 following cancellation of the 66.67% tiered proposal in March 2025.