Transfering Retirement Savings Account, will it be taxable?

[EmmaShazma83]

Dear friends,

a little background, I have been a PR and residing in Canada since 2017. When I left my home country (Malaysia), I sold all my assets (a car and some stocks) and brought all the cash I have here. I have no other assets left in Malaysia, except for a 'retirement savings account' known as the Employees Provident Fund.

This is a government-mandated account, and I am not able to withdraw from this account until one of the following events: 1. I die and the money goes to estate 2. I reach the age of 65 and therefore retired OR 3. I cease to be a citizen of the country.

I am considering to forfeit my citizenship in the old country once I get my Canadian citizenship and withdraw the money from this account to bring here. It is not a crazy amount - after converting to CAD it will be probably be around 65K. For now, it is just money sitting frozen in a government-managed account I cannot withdraw from until one of those three events I mentioned above come to pass. The amount of money in the account mostly stay the same, but every end of year the government pays 'dividend' into it (also non-withdrawable).

My questions are

(1) When I finally withdraw the money and bring it to Canada, how will it be treated tax-wise? How should I declare it? My plan is to do this in 2022.

(2) The yearly dividends that is paid into the account by the Malaysian government, do I have to declare it as income to CRA? I used to be able to get an online statement for this account, but recently my access have been frozen due to a password issue. I am having difficulty to reinstate my access as the customer service keeps telling me I have to be there in person to verify my identity. If I have to declare the dividends to CRA then I have to really prioritize getting those statements again.

(3) Where should I park / invest this money once I bring it to Canada. I don't wish to spend it as it is basically my retirement funds saved for the past 10 years. I'm 36 years old if it means anything.

Thank you for your time.

 

[canuck78]

1 no taxes to bring it into Canada but it isn’t tax sheltered in Canada in it’s current form. You can use it to put into tfsa and rrsp depending on whether you have unused contribution room.

2. Is it in a tax sheltered account? If not you have to look into if their is a tax treaty between the 2 countries. What have you been doing since 2017?

 

[EmmaShazma83]

1 no taxes to bring it into Canada but it isn’t tax sheltered in Canada in it’s current form. You can use it to put into tfsa and rrsp depending on whether you have unused contribution room.

2. Is it in a tax sheltered account? If not you have to look into if their is a tax treaty between the 2 countries. What have you been doing since 2017?

Hi, thank you for taking the time to answer me. It is in a government-agency managed account, mandatory deducted from my paycheck to contribute to this account every month I was working there, but I cannot take it out until retirement, death or leaving the country for good. Right now I have no right to do anything with the money until I rescind my home country's citizenship - therefore 'leaving the country for good'.

I'm not sure if it falls under the category of a tax-sheltered account. But from the Malaysian Income Tax Act,
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Pindaan Act 53 - 23 11 2017.pdf

“approved scheme” means the Employees Provident Fund, private retirement scheme or any pension or provident fund, scheme or society approved by the Director General under section 150;

SCHEDULE 6 [Section 127]

Exemption from tax

PART I

20. The income of any approved scheme

I have looked at the tax treaty, https://www.fin.gc.ca/treaties-conventions/Malaysia_-eng.asp it says:

Article XVIII
Pensions and Annuities
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

but I wonder if it is correct to say that this money is pensions or annuities?

I have been working in Canada since 2017 and have no income generating from Malaysia. I do believe the Malaysian EPF account keeps accruing dividend every year but at the moment I'm unable to know for sure as I'm not able to see a statement online.

 

[canuck78]

Yes your account is tax sheltered. There are often tax consequences once you cash out early. You will have to look at what happens when you cash out and if part of the money is taxed as income when you take it out you’ll have to declare it on your taxes. If it is cashed out as pure savings you can transfer it to Canada and then look into things like RRSP, TFSA, RESP (if you have children) to see what would be best for you longterm and what whether you have left over contribution room from the past few years. If you have no contribution room you can look into investment or savings accounts but those are not tax-free. Any income will be taxed.

 

[EmmaShazma83]

Hi @canuck78 , reviving this thread as the time has come for me to go back and get the money.

If I cash it out as pure savings, do you mean by not tax-free means CRA will tax me on the whole of the withdrawal? Say for example when I return back to Malaysia and withdraw the whole account, the Fund gives me a cheque for $70,000 CAD. Can I deposit that into a Canadian bank account? What do I have to declare to CRA?

Do I have to declare the dividends the account has been accumulating since I landed in Canada until withdrawal date? I would consider the dividends as income, but not the whole account withdrawal amount.

Is it possible to place only a portion of it in an RRSP?

What I intend to do with the money is use a small portion to clear out some retail debt circa CAD 7k. The rest I would like to put towards my first home in Canada, which I guess can go into an RRSP. I'm concerned because someone told me CRA wants me to deposit the whole cheque into RRSP but that just doesn't make sense to me at least. Shouldn't I get to decide how much funds I want to go into RRSP and how much I would like to utilize as cash?

I can't seem to find full information on these, I would appreciate if you can also direct me to some links or reading material. I truly appreciate your guidance to help me get started on finding information.

Edit: I found this: https://taxinterpretations.com/cra/severed-letters/2015-0571591e5 however I'm at lost as to how to read it.

Some considerations that may be relevant:
* There is no penalty for me to "withdraw early" as it is not an early withdrawal but a withdrawal to close the account as I have "left the country".
* There is no withholding tax or the Malaysian tax authority will not be looking to tax the withdrawal at all. Contributions made to the funds by me and my employers are all after-tax.
* Contributions were made between 2008 - 2017 when I was residing and working in Malaysia. No further contributions were made since Dec 2017 when I moved to Canada. However, the Fund itself pays an annual dividend to the account. I am able to procure account statements to show the dividends.
* Due to the pandemic, the Government of Malaysia allowed a fixed amount, once-off withdrawals (twice) to be made from the account, which I had utilized during the pandemic emergency. This will be reflected in the statement of account of the fund.

 

[Canada2020eh]

Hi @canuck78 , reviving this thread as the time has come for me to go back and get the money.

If I cash it out as pure savings, do you mean by not tax-free means CRA will tax me on the whole of the withdrawal? Say for example when I return back to Malaysia and withdraw the whole account, the Fund gives me a cheque for $70,000 CAD. Can I deposit that into a Canadian bank account? What do I have to declare to CRA?

Do I have to declare the dividends the account has been accumulating since I landed in Canada until withdrawal date? I would consider the dividends as income, but not the whole account withdrawal amount.

Is it possible to place only a portion of it in an RRSP?

What I intend to do with the money is use a small portion to clear out some retail debt circa CAD 7k. The rest I would like to put towards my first home in Canada, which I guess can go into an RRSP. I'm concerned because someone told me CRA wants me to deposit the whole cheque into RRSP but that just doesn't make sense to me at least. Shouldn't I get to decide how much funds I want to go into RRSP and how much I would like to utilize as cash?

I can't seem to find full information on these, I would appreciate if you can also direct me to some links or reading material. I truly appreciate your guidance to help me get started on finding information.

Edit: I found this: https://taxinterpretations.com/cra/severed-letters/2015-0571591e5 however I'm at lost as to how to read it.

Some considerations that may be relevant:
* There is no penalty for me to "withdraw early" as it is not an early withdrawal but a withdrawal to close the account as I have "left the country".
* There is no withholding tax or the Malaysian tax authority will not be looking to tax the withdrawal at all. Contributions made to the funds by me and my employers are all after-tax.
* Contributions were made between 2008 - 2017 when I was residing and working in Malaysia. No further contributions were made since Dec 2017 when I moved to Canada. However, the Fund itself pays an annual dividend to the account. I am able to procure account statements to show the dividends.
* Due to the pandemic, the Government of Malaysia allowed a fixed amount, once-off withdrawals (twice) to be made from the account, which I had utilized during the pandemic emergency. This will be reflected in the statement of account of the fund.

The money is non taxable when you bring it into Canada but if you are bringing a cheque or cash with you as opposed to doing a wire transfer from Malaysia, you have to declare it when you are entering Canada but that will not be a problem, you are allowed to bring it in. The only possible thing to declare to CRA would be the dividends you have earned on your tax return as world wide income. Were the dividends taxed in Malaysia? If so and if there is a tax treaty between the 2 countries you might not have to pay taxes on it in Canada.

You can do whatever you want with the money, I suggest deposit into your current bank account and disperse it from there as you see fit. If you plan to use it as a down payment for a house I suggest using your TFSA if you have room in the TFSA, then it is readily available and you will pay no taxes on withdrawing the funds. You could put it in a RRSP, again if you have contribution room, and withdraw it via the HBP(Home Buyers Plan) where you borrow and repay the money back into the RRSP. Into a RRSP gives you a tax deduction for the year it is deposited but it will be considered as taxable income in the future. Make sure you don't put more money into the RRSP or TFSA than you have contribution room.

You can check for more info here:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/withdraw-funds-rrsp-s-under-home-buyers-plan.html

Edited to add that there is a new program started a couple months ago you should check out.
First Home Savings Account (FHSA)

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html