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Brian is a Canadian citizen working abroad and wants to invest his $125,000 tax effectively
Q: I’m a Canadian citizen, but a non-resident living and working in South Korea. I am 47-years-old, and recently received a settlement from a motorcycle accident and now, along with my previous savings, I have about $125,000+ to invest. I have previous RRSPs, but I know that I cannot invest any further in those. I do not feel comfortable leaving such a significant amount of money in South Korea considering the volatile nature of the North.
I would like put a significant piece of that money into a passive investment such as a Vanguard index fund and do some more active investing with the rest. However, I do not want to lose my non-resident status. Would I be better off investing in Canada, the U.S., or elsewhere? I’m not sure I will be moving back to Canada when I retire but have no plans on giving up my Canadian citizenship. I’d appreciate any advice you could give me.
— Brian W.
A: I’m sorry about your accident Brian. You will certainly want to discuss your investment options with an investment advisor but I can provide some information on your tax questions.
If you were to purchase any Canadian investments, you would be subject to tax withholding under Part XIII of the Income Tax Act on any accrued income at either the default rate of 25% or possibly a lesser rate under any applicable article of Canada’s treaty with the Republic of Korea. This would take care of any tax obligations to Canada and no return would need to be filed.
A few investments are not usually enough to establish residential ties with Canada especially when a taxpayer is a tax resident in another country. However, non-resident Canadians, even if they are Canadian citizens, have limited investment options in Canada so it will be very important to ensure your Canadian financial institution correctly lists your residency status. If they do not, you will not have been subject to the required tax withholding and you will receive Canadian resident tax slips, which usually trigger a letter from the Canada Revenue Agency to file a tax return.
Being a non-resident does not affect your ability to contribute to RRSPs under the same rules as for Canadian residents, but it does mean you cannot contribute to a TFSA.
Cleo Hamel is a senior tax specialist with American Expat Taxes in Calgary
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