Retirement Implications for U.S. Ministers Who Served Partly in Canada

I don't want to discourage U.S. pastors from serving in Canada, but there are a few things you should know up front rather than finding out about them at the end of your service.

1.  You must file a U.S. tax return every one of those years.  You must also report any foreign accounts you have yearly.

2.  For every year you are in Canada you will receive a zero earnings in your social security record, resulting in a lower social security benefit.  You may earn and later claim also a Canada Pension based on your earnings in Canada but:

      A.  Your benefit will not replace the benefit you gave up.

      B.  It will become even smaller due to the exchange rate/fees

      C.  If you do not have 30 years of “substantial” social security earnings, Social Security will lower your benefit even more due to your Canadian benefit.

(On the plus side Canada Pension is unlikely to go broke, whereas the future of social security is uncertain.)

3.  If you save for retirement in Canada, the RRSP functions to a large degree like our IRA’s; however when you come back to the U.S. all (reinvested) dividends are in principle taxable. The federal government will allow you to put off taxes until you actually take distributions like U.S. IRA’s; however some states will not allow you to do this. Thus, for example, in California you must pay taxes on all dividends even if you take no distributions for years before retirement.

No matter where you live outside Canada, Canada will withhold 25% of your distribution. If you take periodic distributions (i.e. turn your RRSP into a RRIF and take the minimum distribution per year), your withholding tax is reduced to 15% of your distribution.

But remember your distributions are also fully taxable in the U.S. There is a foreign tax credit but you may not be able to claim the full amount against your taxes. (There is a limit: you divide your foreign income by your worldwide income and multiply the result by your U.S. tax liability for all income. If your limit is larger than the foreign tax you paid you must use the latter. It is also quite likely that the limit is smaller than the tax you paid.)

4.  Your CRC pension for the years of service in Canada will be paid to you in Canadian funds. Here again is something that no one tells you in advance. If you live in the U.S.

     A.  Canada withholds 15% of your pension as tax.

     B.  Again you lose money on the currency exchange.

     C.  Your Canadian pension cannot be excluded from U.S. income as your U.S. pension if you use it for housing. It is simply taxable income always.

      D.  Your Canadian income as such must then be added to your “combined” income (i.e. 50% of your social security benefit plus everything else). If your combined income goes over 25,000 your social security benefit becomes taxable. You may have had zero taxes if you had served only in the U.S., but suddenly you are paying taxes in both Canada and the U.S. and hundreds to thousands of dollars of expenses you did not realize you would have.

     E.  Again the tax you paid in Canada may not entirely be credited to your tax liability in the U.S. It depends on your situation, but even if they are, it will be a small comfort if your Social Security benefits have become taxable because of the Canadian pension.

Maybe today U.S. candidates are forewarned of financial implications of serving in Canada, but in 1994 when I was a candidate, no one told me of the implications (some were obvious:  e.g. you have to pay back your U.S. student debt with Canadian dollars, which made the debt bigger).  We were told we could serve in either or both countries because our benefits were portable. It turns out it is a lot more complicated than that and could make your retirement financially a disaster if you are unprepared.

At the very least, your years of service in one or the other country’s should be transferable so that you are paid only one benefit and according to the laws where you reside.  And if that is not possible, every candidate should be told what the financial implications are so they can plan in advance and not find out at the end of their service when it is too late to do anything about it.

I'm not a tax expert; the above I've learned by contacting others who are in my situation, the pension office, long internet searches as well as long phone calls (and waits) with government officials and it may very well be incomplete. I have not been able to find a tax expert for clergy in cross-border situations.



Make sure you save all your records (e.g. residency permits, etc. so that later you can prove your time in Canada for claiming benefits there—the exact dates of entrance and departure),  If you don't save your papers, after 20 years it becomes hard to prove and when you want to claim your Canadian benefits. You should also start the process a year in advance, because it takes them a while to study and approve foreign applications.