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Old 04.05.2019, 13:59
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Lump sum payments of Pillar 2 and 3a after leaving to Canada

I have no plans to leave Switzerland, but if I do in the future, it would likely be to Canada. Thus, I am trying to figure out which taxes I would be liable for in the event that I cash out my Pillar 2 and 3a while resident there. Could anyone better versed in Legal-Speak interpret this portion of the agreement for me?

Article 18.1 here https://www.fin.gc.ca/treaties-conve...suisse-eng.asp ...
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State, including payments under the social security legislation in a Contracting State, may be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension or annuity payments (except lump-sum payments arising under the surrender, cancellation, redemption, sale or other alienation of an annuity, and payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract), the tax so charged shall not exceed 15 per cent of the gross amount of the payment.

Does this mean that for full lump sum payments of Pillars 2 and 3a I would pay the rate here (approx 2-8% depending on amount and canton) and then could be taxed by Canada up to 15% total (with credit given for Swiss taxes paid)? Or does this only apply if I take it out in regular instalments - and thus they could tax me as they like in Canada? Or does it mean that Canada can't tax this money at all? (This is why I am not a lawyer or accountant.)

Oh, and for completeness for anyone who comes across this post: Pillar 1 (AHV) simply gets paid out upon retirement for Canadian residents.
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Old 04.05.2019, 15:45
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Re: Lump sum payments of Pillar 2 and 3a after leaving to Canada

From what you wrote,



Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State, including payments under the social security legislation in a Contracting State, may be taxed in the State in which they arise, and according to the law of that State.

I interpret it as that Switzerland can tax the payout according to Swiss Law.



However, in the case of periodic pension or annuity payments (except lump-sum payments arising under the surrender, cancellation, redemption, sale or other alienation of an annuity, and payments of any kind under an annuity contract the cost of which was deductible, in whole or in part, in computing the income of any person who acquired the contract), the tax so charged shall not exceed 15 per cent of the gross amount of the payment.


If it is an annuity or periodic the highest tax rate Switzerland can charge cannot exceed 15%.


If you take out a lump sum, Switzerland has first dibs on tax and there is no maximum amount based on this treaty (it will just follow Swiss Law)


If you take out a periodic sum, Switzerland has first dibs on tax and there is 15% maximum amount based on this treaty.


----


It does not mention how after the the taxes are deducted by the arising state (Switzerland), how it will be treated in the contracting state, Canada.



At the end of the day, Canada can STILL tax you after and that is under Canadian law, not this treaty. Canada should take into the account how much tax you paid already. There is no maximum rate of tax Canada agrees not to tax you at. This treaty just states that Switzerland can tax you before Canada.



Will you be a resident of Canada at the time of the payout? Also will you be considered a tax resident of Canada during the year of the payout. If you are neither then you arent liable for Canadian taxes. ie. You could be lying on a beach in Thailand when the transaction goes through and have not resettled back in Canada at the same time.


You could also send a letter to Revenue Canada asking them in this particular case. They reply with a FEW months. I did that in regards to my tax status to get a letter saying they no longer consider me a resident of Canada and thus do not need to file any taxes.
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Old 04.05.2019, 19:44
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Re: Lump sum payments of Pillar 2 and 3a after leaving to Canada

Thanks for the interpretation... that is kind of what I thought, but I was not sure how to interpret it.

Do you know if Canada taxes foreign pension plan lump sums as normal income or if there is a special (lower) tax on it? If it is taxed as normal income, then that would pretty much negate any tax advantage of using the 3rd pillar here if one's intention was to move to Canada.

About the being in Thailand or elsewhere, I guess that, legally, one would have to declare oneself resident in this 3rd country and pay taxes on pension income there. I don't think there is a way to be a resident of no where for tax purposes... if so, it is probably only available to people with much deeper pockets (to pay tax lawyers) than me!
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Old 04.05.2019, 20:03
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Re: Lump sum payments of Pillar 2 and 3a after leaving to Canada

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Thanks for the interpretation... that is kind of what I thought, but I was not sure how to interpret it.

Do you know if Canada taxes foreign pension plan lump sums as normal income or if there is a special (lower) tax on it? If it is taxed as normal income, then that would pretty much negate any tax advantage of using the 3rd pillar here if one's intention was to move to Canada.

About the being in Thailand or elsewhere, I guess that, legally, one would have to declare oneself resident in this 3rd country and pay taxes on pension income there. I don't think there is a way to be a resident of no where for tax purposes... if so, it is probably only available to people with much deeper pockets (to pay tax lawyers) than me!

How Canada taxes pension income... I'm not up to date but I think it counts as regular income. If i remember correctly if you have a Canadian RRSP (pillar 3 equivalent) it is pretty much a tax shelter. You get a tax deduction upon buying in to your RRSP but you get taxed the same when you cash out. The benefit is your earnings are tax free and when you cash out, we are assuming that the RRSP is your only income so you will be taxed at a much lower bracket.



I cannot see how the Canadian government will treat a 3e any differently. The treaty will just allow Switzerland to take but what is theirs, then Canada will tax the remaining to their rate, taking into account that you already paid a few percent to Switzerland.



It will still benefit even if youre moving back. Just cashout your 3e pillar here and then transfer back to Canada before retirement, that isnt income so not taxable. Re-invest back into an RRSP in Canada.
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