Terry Tang, Investment Advisor
July 15, 2020
Another common question asked by people from Hong Kong is the potential tax implications of MPF when moving to Canada.  Interpretations from CRA already have provided answers as to how MPF can be taxed, which I will explain here.
Withdrawing Your MPF AS a NON-RESIDENT
Generally, if you make a full withdrawal before you become a Canadian resident, you do not have to pay tax to the CRA.
According to CRA, the most important thing to consider when determining your residency status in Canada for income tax purposes is whether or not you maintain, or establish, residential ties with Canada.  Residential ties consist of significant and secondary1.
Significant residential ties include:
- A home in Canada
- Spouse/Common law in Canada
- Dependents in Canada
Secondary residential ties include:
- Personal property in Canada, such as a car or furniture
- Social ties in Canada, such as memberships in Canadian recreational or religious organizations
- Economic ties in Canada, such as Canadian bank accounts or credit cards
- A Canadian driver's license
- A Canadian passport
- Health insurance with a Canadian province or territory
If you have residential ties with Canada, you may be considered as factual resident for income tax purposes and taxable on worldwide income.
You may also be a deemed resident if you have not established resident ties but stayed in Canada for more than 183 days.
Generally, it would be ideal to make your MPF withdrawal before you establish residential ties and move to Canada.  In such cases, the withdrawal is not taxable.
"Generally, it would be ideal to make your MPF withdrawal before you establish residential ties and move to Canada.  In such cases, the withdrawal is not taxable."
Withdrawing Your MPF AS a RESIDENT
However, if for any reason you could not withdraw MPF prior to becoming a resident, and make a full withdrawal after becoming a resident, you would be liable for tax.
The moment you become a Canadian resident, you are liable for taxes on worldwide income.  MPF is considered as foreign pension according to the CRA and any withdrawal is included as income in the resident's tax return2.  In other words, your MPF withdrawal is fully taxable, regardless of principle and capital gain.
Transferring To RRSP
Good news is that according to the Income Tax Act, you may be eligible to transfer your MPF to an RRSP and defer tax.  You would be required to report the withdrawal as income, at the same time get the same amount of deduction to offset it3.  A Registered Retirement Savings Plan (RRSP) is an investment account that allows you to defer taxes on investment gains (such as capital gain, dividends, or interests) and future withdrawals are considered as taxable income.
For example, if you have $300,000 in MPF and it was transferred over to an RRSP, you report the amount as income but at the same time you get a deduction to offset it.  Five years later, your RRSP grew to $400,000 in market value and you decided to withdraw $50,000, you would not be liable for any taxes on the $100,000 investment gain but the withdrawal of $50,000 would be your taxable income for the year.

1 Determining Your Residency Status, Canada.ca, 
2 January 17, 1992, Paragraph 9, IT-499R, Superannuation or Pension Benefits, Income Tax Act
3 Section 60 (j)(i),Transfer of superannuation benefits, Income Tax Act
The views and opinions expressed are those of the author and may not necessarily be those of Aligned Capital Partners Inc.  The content is for informational purposes only and not meant to be personalized investment advice.  Please consult with your own tax, legal, accounting specialist before engaging in transaction.
Disclaimer:  Information contained in this publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by Terry Tang, ACPI or any other person as to its accuracy, completeness or correctness. All opinions expressed in this communication are as of the date of this publication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this publication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Products or services referenced may not be suitable for you and it is recommended that you consult your financial advisor if you are in doubt about the suitability of such investments or services. This is not an offer to sell or a solicitation of an offer to buy any securities. Investment products are provided through ACPI and include, but are not limited to, mutual funds, stocks, and bonds. All non-securities related business conducted by Terry Tang is not in his capacity as an agent of ACPI. Non-securities related business includes, without limitation, fee-based financial planning services; estate and tax planning; tax return preparation services; advising in or selling any type of insurance product; any type of mortgage service. Accordingly, ACPI is not providing and does not supervise any of the above noted activities and you should not rely on ACPI for any review of any non-securities services provided by Terry Tang. Past performance is not indicative of future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada has their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdiction. No matter contained in this document may be reproduced or copied by any means without the prior consent of the author or ACPI.

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