Withdrawing from investments when you don’t live in Canada
You ask about RRSP withdrawals in the future. As a Swedish resident, withdrawals would be subject to 25% Canadian withholding tax.
In retirement, registered retirement income fund (RRIF) withdrawals may be subject to a lower 15% rate. But if you contribute now, and then want the money out in a few years when you’re a non-resident, you will save no tax on the contribution and be subject to 25% on the withdrawal—a bad outcome.
Canadians investing in ISKs
Sweden offers an investeringssparkonto (ISK) account that has similarities to a Canadian TFSA. Instead of the income earned in the account being subject to tax, the account value is subject to a flat 30% tax rate, payable on a standard income rate that changes from year to year.
The standard income rate for 2022 is 1.25%, so 30% tax is payable on 1.25% times the account value. Interest, dividends and capital gains are generally taxed at 30% in Sweden as well, so as long as you can earn more than 1.25% on your ISK investments, you should be better off investing in that account than a regular, taxable investment account.
It seems like an ISK account is a good option for you to consider, Kyle, even if you are in Sweden just temporarily. If you return to Canada, you can use your RRSP room and contribute to an RRSP at that time, when the tax deductions are actually of use to you. TFSA room will begin to accumulate again as well, and you can make TFSA contributions.
RRSPs and TFSAs for Canadians abroad
Until that time, you can maintain your existing RRSP and TFSA accounts. You can even have a regular investment account in Canada. Withholding tax of 10% would apply for interest income, 15% for dividends and trust (mutual fund or exchange traded funds, a.k.a. ETFs) distributions, and no withholding tax would be payable on capital gains on your investments as a Swedish resident. Canadian withholding tax would generally be eligible to claim against the tax on those investments in Sweden.
Canadian non-residents cannot buy new Canadian mutual funds, but they can continue to hold existing mutual funds. Some financial institutions are more flexible than others when it comes to working with non-residents of Canada. Most will allow you to maintain an account after becoming a non-resident but opening a new account as a Canadian non-resident can be difficult.
I hope that helps, Kyle. Good luck with your Canadian and foreign investing and figuring out where your expat adventure will take you next!
