Retirement

[worldcitizen]

I am a dual citizen of Canada and USA and a US resident. I have worked for more than 25 years in US and, previously, I worked for several years in Canada (Quebec). I’m planning to retire at 62 or 63 in US and I’m not sure if I understand/interpret correctly parts of the Agreement, so I have a couple of questions. If somebody could help me with, I would very much appreciate it.
When I start drawing both Soc. Sec. and QPP, is there going to be any reduction of the SS amount because of the QPP? Or, vice versa, any reduction of QPP due to SS drawings?
Are these two benefits going to be handled and distributed separately by each country, or they are gonna be combined and handled by one jurisdiction?
What are the tax laws that will apply to this particular case?

Thanks in advance,

worldcitizen

[nelsona]

You will get QPP determined soley by your Cdn work history.

You will get SS based on your US work history, and, unles you get 30 years of SS contibutions, there will be some reduction of SS, by the WEP process due to your foreign work, which you will have to report when you apply, so you might want to think of that before drawing SS (that and the fact that your SS will be reduced if you take it early.)

QPP will send you a monthly payment which will NOT be taxed by Canada. It will only be taxed by US, treated exactly like SS (only 85% taxable).

Don't forget to clim OAS when you hit 65. you ae entitles to XX/40th of the monthly maximu, with XX being the number of years you lived in Canada after your 18th birthday.

[Jaspal]

Nelson,

Isn't there a requirement of living 20+ yrs in Canada for getting OAS by non-residents.

[Jaspal]

Nelson,

For a situation given above, for someone having worked say 20 yrs in Canada and another 15 yrs in US, on retirement with incomes from SS/CPP/OAS and may be 401K/RRSP, purely from a broad taxation point of view, which country is better to be resident of. I agree it depends, but there may be some concensus based on experience, assuming that for a US citizen, as a Canadian resident US/NR tax will still need to filed.

[nelsona]

If you have lived less than 20 year in Canada, and currently live outside Canada , you are normally entitled to only 6 months of OAS (at the xx/40 prorated amount for XX years spent in canada as an adult).

HOWEVER The totalization agreemnet covers OAS in the folowing manner:

If the number of years you lived in Canada PLUS the number of years you contributed to SS (quarters divided by 4) adds up to 20 or more, you get your OAS (again xx/40 of the regular amount) for life.

Your time WORKING in US is counted towards eligibility for lifetime OAS payments, but not to increase the amount.

[Jaspal]

That clarifies an important point. Is working and contributing to SS is necessary, or just living in the US would contribute to the eligibility years. This particularly relates to spouses, who may not be working but living in the US while theri spouse is working and contributing.

[nelsona]

Obviously, form a pure taxation point of view, living in the US will be better.

If you live in Canada, all the income you mention will be fully taxed in Canada and province (except 15% of the SS will not be taxed). The US tax (assuming you filer as a US citizen, which is always your right) will be sufficiently small as to be completely used up on your Cdn return, so no extra tax will be paid. Also, you risk having your OAS clawedback if you make over certain threshold.

If you live in US, all the income you mentionned is taxed in US. Only one's RRSP would be taxed at 15% in Canada, with possibly being able to use all the tax on your US return. Your SS/CPP/OAS would be subject only to 85% inclusion, and no possibility of clawback of OAS.

Add to this the opportunity to live in a state that has no income tax, and this is a no-brainer.

And this is true no matter how much or how little income you have. -- FROM A TAXATION POINT-OF-VIEW ONLY!!

[worldcitizen]

nelsona,

Is SS gonna be reduced even before I start drawing QPP? Say, I start drawing SS at 63 and QPP at 65.
Is the reduction gonna be equal (or around) to the QPP (estimated) amount, or a prorated one?

Thanks again for your help,
worldcitizen

[nelsona]

I would think you would want to do it the other way around. Until recently at least, drawing CPP/QPP early was 'better' as the reduction was not suignificant, and it would take MANY years before you would being losing ground to someone who waited until 65.

Not so for SS, which severly penalizes you for starting early. That and the fact that you can avoid all this WEP by working 30 years would lead me to conclude that you should NOT take SS early, and should try to get 30 years of US work history. (you need about $25K earning per year right now for the year to count towards the 30.

But, to your question: I'm not sure. The WEP documanetation uses "earned" a pension and "recieving" alternately. So, this could be interpreted as WEP applying whether you are getting QPP or whether you will be enetitled to QPP. In any event you MUST disclose the you had non-SS covered work when you apply, and they will try to figure it out.

It is NOT a dollar for dollar reduction, so the effect will not be that you lose all your QPP to WEP. But it would obviously be better not to lose any money, neither through WEP, nor thru early claiming of SS.

You need to get up to speed on WEP:

http://www.ssa.gov/retire2/wep.htm

[nelsona]

As you see from the various charts, there is a maximum that WEP can take away. It would appear that you would need to know your QPP (which may indicate WEP only applies once you take the QPP.

Using your numbers, if you worked for 25 years and started taking SS at 62, the most WEP would take is $197.80 or half of QPP per month, which ever is least.

So figure you will lose no more than 1/2 your QPP or $200, whichever is least. You will see that the number drops to zero the more years you work after 25, until it zeros at 30 years.
Of course if you are alos gettinga pension from Cdn company, that also would factor in

[nelsona]

Has QPP told you approx what you will get for 10 years of work so long ago?

I'd be curious, as a gauge to what the payback is.

[Jaspal]

Canada permits splitting CPP with spouse in any ratio. If most of CPP is tranferred to non/low CPP/SS spouse, could that benefit in reducing WEP of higher SS spouse

[nelsona]

First off, let's be accurate in our terms.

You are talking about CPP "sharing", not CPP "splitting" (which is for divorce situations). Nor are we talking about Pension splitting where one spouse reports an optimized amount of their pension income (not CPP) on the other's tax return. IRS does not recognize pension splitting for tax purposes.

On CPP sharing: I'm not sure that there is a provision for the the share to be determined by the couple. CPP will divide the shareable portion in 2 equal parts. I'm quite sure that, for example, you could not give all your CPP to your spouse, the best you could do is give her half of yours.

Will reducing your CPP by this way reduce your WEP penalty? Prooably, but then it may also increase the WEP on the other spouse.

Also, don't forget that in cases where one spouse has worked very little in US, their SS benefit is determined by the spouse's benefit (minimum benefit is 50% of what the higher earning spouse gets). This could come into play, and WEP would not apply to that spouse's benefit.

[raysonet]

Here is a link to cdn gov't services calculator which will assist you regarding OAS eligibility etc. Just follow the steps on each page..

perhaps you may have to copy and paste into the address bar in your browser..

good luck in your considerations.

https://srv111.services.gc.ca/%282oag20 ... AS_01.aspx

[nelsona]

Thanks. Of course, it simply states one is not eligible if oner has not met the 10 or 20 year residence marks, and does not take into consideration any totalization agreement, so its usefulness is marginal.