Swiss 2nd Pillar capital withdraw versus Canada taxes

Taxes
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To expand (rather than editing my previous comment:

…especially if there is a double taxation agreement.
Yes, double taxation may occur - but the general “logic” should work like this:

  • You may reclaim Swiss tax withheld at source if the foreign country of residence is assigned the right to tax
  • You may not reclaim Swiss tax at source if the foreign country is not assigned the right to tax
    → that is, if Swiss taxation is “final” (well, at least for that part).

For me, this would, very tentatively, and without saying anything about the province of Québec, suggest that Switzerland withholding tax may indeed be final. See this explanation that I could google quickly:

“Même si une convention de double imposition a été signée avec des pays comme le Danemark, le Royaume-Uni, l’Islande, le Canada, la Suède ou l’Afrique du Sud, les Suisses qui s’y sont établis ne peuvent pas réclamer le remboursement de l’impôt à la source. Dans le jargon fiscal, cela signifie que l’accord en question cède le droit d’imposition à la Suisse.”

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Thanks for the infos. This is why I’m lost in my investments, as I have a tax rate of about 35%. I could buy back up to 1.5M in my 2nd pillar, but knowing that the money would be blocked for 3 years, and if I decide to leave the tax office could cancel my previous deductions up to 3 years. I could buy back about 100K every fiscal year and save about 38K of tax per year. Average interest of my pension plan is 4-5% a year.

I lost quite some money in trading, and now I prefer Real estate and LPP.

People always say you make money in investing in Trading, but they forget that you may as well lost.

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No, you can’t reclaim it from the Swiss tax authority (in the place where your pension fund is domiciled).

The Swiss tax authorities would certainly not tell you about any deductions you can make from your Canadian tax bill.

Possible, but I don’t quite think so, since there is a DTA between the two countries. What you’re saying would constitute double taxation - something that double taxation agreements are designed to mainly eliminate.

If anything - and I’m (with my limited knowledge) not ruling out that Canada will tax you for more than the Swiss withholding tax - they would allow you to deduct Swiss withholding tax from your Canadian tax bill, so as to avoid double taxation, by way of a foreign tax credit.

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While I’m merely an ape :gorilla: with a keyboard, from what I can quickly gather, you have to report in Canada, and it will generally be taxed in Canada - allowing foreign tax credit for Swiss (withholding) tax paid.

Common advice seems to be to transfer it into a Canadian registered retirement savings plan (RRSP) to defer taxes and offset/minimise tax in Canada (and yes, Québec seems to receive some extra special treatment upon withdrawal).

“Jennifer is a 47-year-old Canadian citizen who just returned to Canada after 10 years of living and working in Switzerland. She was a member of a Swiss Pillar 2 Fund…”

https://www.advisor.ca/retirement/retirement-news/how-to-bring-global-pensions-home/

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Thanks for the link! This guy seems to know what he’s talking about and it’s first time I see an article with a Swiss case!

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Refer to this thread. It seems Postfinance may let you withdraw 3 pillar whilst still a Swiss resident if the paperwork has been stamped by your commune. I have no data if this is possible for 2 Pillar.

Another option would be to move the UK, the UK CH double tax treaty says the pension would not be taxable in UK, you only have to pay withholding tax in CH. I am sure there are other counties, for 1M taxable it would be worth it…

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Thanks Barto. Interesting for the 3A! Also knowing that the 2 Pillar would nott be taxed in UK.

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Hi Caribou and all,

Thanks for thread. Very interesting discussion indeed, especially since I find myself in an extremely similar situation: roughly the same age, originally from Quebec, now Swiss citizen, fair amount in the 2nd pillar (in part from buy-ins), etc. The only difference might be the desire to go back to Quebec one day :wink:

Joking aside, I do have experience moving back to Quebec and withdrawing the capital a couple of times (not necessarily in that order though ;). My experience is of questionable quality however, since it was a long time ago, and I might not have been fully aware of the proper tax implications at the time (likely an understatement, as you’ll see). The information and suggestions found in this thread are much more useful and representative of my current understanding.

Nevertheless, just for the sake of answering your original question, and because it might contain semi-useful information:

  1. The first time my money was at a generic Fondation de Libre Passage (since I had been traveling for a year). The contact person was absolutely adamant that I had to prove that I was a resident of Quebec before paying out the capital (I was still listed in the Swiss phonebook for some reason). So I eventually received the payout while a resident of Quebec, and simply did not think of declaring it (yes, that stupid/naïve).

  2. The second time the money was still in my employer’s fund. Since I knew the pension fund manager, she told me that all she needed to see was the ‘Avis de départ’ from the commune. Given that you can obviously get that before physically leaving the country, my libre passage was paid out to my swiss bank account before even boarding a flight. For this to “work” though, I forewent the option of transiting the vested rights through Schwytz (plus the amount was not really material enough at the time). Embarrassingly enough, I did not declare that either in Quebec. To my defense, I felt like I was still a Swiss resident for tax purposes when the payout was made (i.e. a slightly more sophisticated self-delusion than the first time). I’m not sure if that’s even possible, but worth considering if conceivable.

In any case, just one more comment for now:

That’s not a bad idea, but as pointed out many times in this forum before, it’s not that straightforward unfortunately. I’m in the process of considering that myself. For starters, you do need to provide proof of three separate clients (invoices) in order to even be considered for ‘self-employed’ status (‘indépendent’). Also, keep in mind that in order to withdraw your 2nd pillar in such a case, the same ‘no buy-ins in the last three years’ rule that applies for lump sums at retirement apparently applies here as well.

Alright, lots more to say of course, but that’s a good start!

Hope this helps a little (not sure though :wink: )

Cheers.

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Hello Mister B nice to know I’m not alone in that situation! Also thanks for your feedback. As you said I also did few buy-outs and this is why I’m not too sure I will continue that way even though I’m saving a 35% on tax. Those buy-outs are good if you stay in Switzerland, but for now I do feel it’s not as good as it seems if someone wants to go back in Québec.

Unfortunately I do not know my future…lol…but as you said getting the status of an ''Independent ‘’ seems to be tricky but if I can avoid to pay 300 or 400 K of tax I prefer to start something such as private driver or anything else not to costly and then move all my money to Canada.

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@MisterB your post is really helpful. Thank you :slight_smile:

I had been hoping the above was possible (albeit not for the purposes of moving to Canada specifically) but did not hear a real example from anyone until now.

I asked my own pension fund and they told me it was NOT possible. So it appears it may depend how the administrator of each fund understands and applies the rules (and perhaps whether they are willing to help you )

If it is possible for a Pension Fund, then it is presumably possible for Vested Benefit funds too. If so then it would be a case of finding a Vested Benefit fund that can do it. Value Pension and VIAC told me they cannot. Maybe PostFinance can as per the thread linked above (?)

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I completely understand your situation. I found myself in the exact same one, that is, wondering if I should continue making buy-ins or not. As you say, if we knew our future, that would be easy! For everything else, there’s modelling :wink: There are a lot of variables involved though, and as with every model out there, it is heavily dependent on assumptions (I’m a pension actuary, so I’m painfully aware of that fact!). Those are not necessarily financial assumptions only though, like expected returns, but also personal ones, like whether you might leave Switzerland and when. That’s why some people will conclude that buying into their pension fund is a ridiculous idea, while some might see it as a financially reasonable thing to do.

My point is that one could determine every year or so if your parameters (personal situation and assumptions) still make buy-ins financially reasonable or not. You’d have to take into account things like expected return of your pension fund (you seem to be in an autonomous one, judging by your historical returns), investment horizon until your retirement/departure, marginal tax rate, personal expected return, dividend/capital gain proportion, etc. I personally use a simple spreadsheet that capture most of these variables in order to help make that decision. I’d be more than happy to share (without any guarantees!) if you’re interested. As I said, it’s heavily dependent on assumptions, but in a nutshell (and assuming you get a better return outside the fund), the shorter the investment horizon, the more beneficial the buy-in is.

Of course if we want to make things more interesting, we should take into account volatility and/or uncertainty (sorry, can’t resist :wink: ). Indeed, the simple tool I mentioned is only deterministic, and as such doesn’t capture the wide range of possible outcomes, which one could see better with a stochastic projection (even more assumptions sadly :confused: ). For instance, buying-in today gives you an almost guaranteed tax return in the very short-term (in an investment vehicle, the pension fund, that has a very peculiar return profile—positively correlated to the stock market, but with a floor), whereas your personal investments outside of the pension fund could return a lot more, albeit with more uncertainty/volatility. At this stage, even without stochastic modelling, every individual’s risk tolerance and capacity for it will come into play.

Hope that makes some sense!

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Thank! Very interesting! Yes if you don’t mind to send me the spreadsheet it would be great!

Also my other plan was to perform several major buy-outs on the next 2 years and then wait 3 years so I could withdraw an amount to amortize my mortgage (if there is a high interest increase). I know I will have to pay about 10% of tax and that I will not be able to do buy-outs in the future… Again as well not sure what will be my salary in 5-10 years (maybe it will be a lot less then less interesting to go with the buy-outs) so this is why I’m hesitating right now to perform buy-outs reducing my tax from 35%…No easy lol…

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Hi Caribou. Happy to share the spreadsheet with you. Your email has disappeared from your message though, probably removed by an admin. So I’m not sure what’s the best practice for sharing files here, but I’ve put it on my google drive for now. Let me know if that doesn’t work. Here’s the link:

The spreadsheet is pretty simple, and can probably be improved tenfold, but I think it gets the job done. Indeed, its objective is merely to determine whether making a buy-in could be advantageous or not, taking into account all the major variables that I could think of.

As mentioned before, its heavily dependent on assumptions though, so make sure to plug in your own!(convention: input is in blue, calculated fields in black).

Let me know!

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Thanks! I will have a look. Yes I decided to remove my Email as I finally tough is was not so great idea!

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Dear MisterB,

So happy to read this thread/exchange. I am in the same situation: Canadian working and residing in Switzerland and contemplating a return to Quebec in a couple of years. I am 59 y/o, so a few years before retirement. I was all excited to overcontribute to my Pillar 2 and reduce my overall Swiss taxes from 40% to 30%… but it is so unclear now if periodic payments from a vested benefit account remaining in Switzerland would lead to taxation both in Canada and Switzerland. Assuming a taxation rate in Canada/Quebec of 40+% on retirement, the money saved today in Switzerland would be eaten up later. However, when I read the tax treaty between Canada and Switzerland, my interpretation is that it would only be a 15% tax taken in Switzerland with no taxes in Canada or Quebec - this would be good. I will try to have a consultation with a tax expert in Canada in the next few days… but if somebody could help me out, that would be great. Thanks a lot… and a long life to this web platform.

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Vested benefits accounts usually don’t make periodic payments to you (unlike pension fund where you’ve become eligible for a pension).

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Hello Peter 1, thanks for your reply. It seems to be confused on your side. There is many situations if you leave Switzerland:

  1. If you retire and get a rent, this will be considered as an income. Meaning your pension fund could retain up to 15% of tax if you live in Canada, but in any case (not sure how to claim it) you will get a credit for it when do your tax report in Quebec or you will have to ask for a credit return to Switzerland as they do have a convention with Canada. Then you will have to pay tax in Canada&Québec according to the level of income.

  2. You retire from your job in Switzerland, ask your pension fund to get a Lump Sum, then you will pay only a 1 time tax. This tax will vary depending of your residency address. For example I think Geneva is about 10% . This is the best if you want to save tax on your withdrawal (prior leaving to Canada).

  3. You retire, move to Québec THEN ask for a Lump sum. You will also pay for the 10% tax (EX: if your pension fund is in Geneva), but here is the tricky part, you will ALSO pay some taxes in Canada and Québec and you CAN’T CLAIM back the 10% meaning it’s lost. THIS IS THE PART YOU NEED TO ASK YOUR TAX ADVISOR SPECIALIST. You could loose a lot of money

Some friends advised me to consult highly qualified accounting/tax advisor firms such as KPMG, PWC. They have offices in Switzerland & Québec. My planned is to do it when I get close to retirement meaning in 15 years…

Following the tax advisor responses I would look for different scenarios:

  1. If I’m looking for a rent/safety it doesn’t matter where you live. The end result will anyways be taxed as a standard income.

  2. If you want the capital, then I would either:

A) If Canada and Québec tax another 50% to the Swiss 10% then I would retire in Switzerland first, withdraw my Lump sum, pay the Swiss tax and then move to Québec the other fiscal year. You could then transfer tax free your money and invest it by yourself.

B) If Canada&Quebec doesn’t tax you on a Lump Sum and you want the capital I would check where is located my pension fund. If it’s Geneva for example I would move my capital to a company such Liberty in Schywtz, therefore you could only pay about 5% on the Lump sum withdrawal. If pension fund doesn’t want you to get the capital, then leave your job few months before, then you can transfer it to a vested account,

Even better try to split your full amount in 2 and make a deposit on 2 separate vested accounts in Schwytz, you could, then withdraw 1 account on 1 fiscal year to save tax.

I would be highly interested when you have feedback from your tax specialist in Québec.

Hope that will help

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Correction: if you withdraw 2P or 3P whilst resident in CH you pay withdrawal tax based on your canton of residence

(If you withdraw it after leaving, that is when a withholding tax is charged based on the canton where the 2P/3P institution is domiciled)

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Hello Barto, yes my mistake! Thanks for the feedback.

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Hello Peter1, have you been able to get some responses from a Tax Advisor on this matter?

Thanks