Canadian and US Pension Plans

Canada and the US each have government pension plans that Americans living in Canada may be able to benefit from in retirement. Cross-border tax issues should be considered when assessing how much government pension income Americans living in Canada will be able to collect.

Those who have spent their careers working in the US may be eligible for US Social Security payments. Generally, you are eligible to receive US Social Security if you have worked for approximately 10 years in the US.

Americans who move to Canada to continue their careers will also be eligible for Canada Pension Plan benefits (“CPP”) upon retirement as CPP contributions are mandatory in Canada. Old Age Security (“OAS”) benefits are also available to those Canadian residents who spend at least 20 years living in Canada as adults.

When Americans move to Canada, they worry about whether they will still be able to receive their US Social Security payments and how much tax the CRA will collect.

Fortunately, through the Canada-US Tax Treaty (the “Treaty”), US Social Security Credits are only 85% taxable by the CRA, and the IRS does not tax Social Security benefits of Canadian residents. (Note that the CRA taxes 100% of CPP and OAS benefits, while only 85% of CPP and OAS benefits are taxable by the IRS under the Treaty.)

One cross-border pension limitation that may affect Americans who move to Canada is the Windfall Elimination Provision, or “WEP”. The WEP is a US domestic law that allows the US government to claw back Social Security payments of a US person who earns CPP income.

Another potential limitation is the CRA’s OAS clawback rule. The rule is that if a Canadian resident’s earnings exceed a certain threshold amount in yearly income (from sources such as employment, investment, or even CPP income), the government can force the resident to pay back some of their OAS payments. Above a certain maximum threshold, the CRA can stop providing OAS payments entirely.

We work with our clients to balance the competing cross-border pension rules that may exist in Canada and the US and, moreover, to advise on planning opportunities.