In the case of Mexico, Marianna, a taxpayer is taken into account a resident of Mexico if she or he has everlasting residency available in Mexico. If they reside in each Mexico and Canada, the placement of their center of important interests – their personal and economic ties – have to be taken under consideration. This is a condition of Income tax treaty between Canada and Mexicoa tax treaty just like many others that Canada has entered into with other countries to ascertain tax rules between them.
The courts normally discuss with the article of residence OECD Model Convention on Double Taxation when defining the middle of important interests:
“If the person has a permanent residence in both Contracting States, a factual examination is necessary to determine which of the two States his personal and economic relations are closer. His family and social relationships, his professions, his political, cultural or other activities, his place of business, the place from which he manages his assets, etc. must be taken into account. The circumstances must be examined as a whole. Nevertheless, it is clear that considerations based on the personal actions of the individual need to be given particular attention. If a person who has a home in one state builds a second one in the other state, keeping the first, this is the fact that he is keeping the first in the environment in which he has always lived, where he has worked and where she has her family and possessions, together with other elements, may prove that he has retained the center of his vital interests in the first state.”
Tax implications in your assets if you leave Canada
If you sell your property in Canada or rent it to a tenant and develop closer ties with Mexico, you’ll likely not be a resident of Canada. There could also be tax implications for the assets you own if you happen to leave or are deemed to have left Canada, Marianna. Assets similar to unregistered investments are subject to a deemed disposal (a deemed sale) and this may occasionally trigger capital gains tax if the assets have increased in value. Other assets similar to pensions and investments are subject to withholding tax on income after you permit.
You’re specifically asking about monthly pensions, Marianna. Regular payments of a registered pension plan (RPP), similar to a monthly defined profit pension (DB), are subject to a Canadian withholding tax of 15% for a resident of Mexico. The same 15% rate applies to Canada Pension Plan (CPP), Old Age Insurance (OAS) and Registered Retirement Saving Plan (RRSP) or Registered Retirement Income Fund (RRIF) regular payments. A capital withdrawal from an RRSP or RRIF is subject to a better withholding tax of 25%.
Tax on unregistered investments is restricted to dividends or trust distributions (mutual funds or exchange-traded funds). The withholding tax rate is 15%. Most Canadian interest earned by a Mexican resident is just not subject to withholding tax in Canada.
Capital gains from unregistered investments made by a non-resident are also not subject to Canadian withholding tax.
Do non-residents file a Canadian tax return?
If your Canadian income is comparatively low, you could profit from down voting Section 217 of the Income Tax Act to voluntarily file a Canadian tax return. The tax is calculated based in your qualifying Canadian income. Eligible income includes CPP, OAS, pensions, RRSP/RRIF withdrawals and another Canadian sources of income. If you owe less in taxes than the 15% or 25% originally withheld, you possibly can get a refund.
