Which Treaty Is Actually In Force
This is educational content, not tax advice. Canadian cross-border tax for olim is technical and the consequences of getting it wrong (especially on departure tax) are large. Use a Canadian cross-border CPA who handles aliyah files routinely.
The treaty currently in force between Canada and the State of Israel is the Convention between the Government of Canada and the Government of the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed on 21 September 2016 and entered into force on 31 December 2016. It replaced the original 1975 convention. The 2016 convention is the version a Canadian oleh becoming an Israeli resident in 2026 should rely on; older guidance referencing the 1975 treaty is out of date.
The Treaty in One Page
Articles relevant to most Canadian olim:
- Article 4 (Resident): defines residence and contains the standard tiebreaker (permanent home, centre of vital interests, habitual abode, nationality, mutual agreement).
- Article 10 (Dividends): source-state withholding is capped at 5% for corporate shareholders holding at least 10% of voting power; 15% in other cases.
- Article 11 (Interest): withholding generally capped at 10%, reduced to 5% for interest paid in respect of arm’s-length loans made by financial institutions; certain government and pension-scheme interest is exempt.
- Article 12 (Royalties): withholding generally capped at 10%; certain cultural royalties are exempt.
- Article 13 (Capital Gains): gains on immovable property are taxable where the property is located; gains on shares deriving more than 50% of value from immovable property are similarly source-taxed; other capital gains are taxable in the country of residence.
- Article 18 (Pensions): source-state taxation, but capped: tax in the country where the pension arises must not exceed the lesser of 15% of the gross payment of a periodic pension, or the tax that the recipient would have paid had the payment been included in their total taxable income for the year.
- Article 19 (Government Service): remuneration paid by Canada to its employees is generally taxable only in Canada, with carve-outs for Israeli nationals who are not Canadian.
- Article 22 (Elimination of Double Taxation): Israel grants a credit for Canadian tax; Canada grants a credit for Israeli tax.
- Article 26 (Mutual Agreement Procedure) and Article 27 (Exchange of Information): dispute resolution and CRA-ITA cooperation.
Departure From Canada and the Deemed Disposition
Section 128.1 of the Canadian Income Tax Act treats most assets as sold at fair market value on the day you cease to be a Canadian resident. The deemed disposition triggers Canadian capital gains in the year of departure. The treaty does not eliminate the departure tax; it operates entirely under Canadian domestic law.
Key planning points where the treaty does interact:
- Date of cessation of Canadian residence. CRA looks at residential ties (home, spouse, dependants, personal property) to set the cessation date. The Israeli residence start date is set by the ITA, often coinciding with aliyah day. The two dates can differ. The treaty tiebreaker resolves the rare case where both countries claim residence on the same day, but the deemed disposition is set by Canadian law on the Canadian cessation date.
- Form T1161 (List of Properties) is mandatory if your worldwide property on the cessation date exceeds CAD 25,000. Form T1243 reports the actual deemed gains and losses.
- Election to defer tax under section 220(4.5). CRA allows emigrants to defer payment of departure tax (with security) until the asset is actually sold. Many olim use this to align departure-tax recognition with the eventual sale during the 10-year Israeli exemption window.
- Step-up at the Israeli side. Israel adopts the cost basis at the aliyah date for purposes of the 10-year exemption analysis (the gain that accrued before aliyah is foreign-source pre-aliyah gain; the gain after aliyah is also foreign-source under section 14, exempt during the 10-year period). Document the fair market value at the aliyah date for each material holding.
- Excluded assets. Real property in Canada, RRSPs, RRIFs, RPPs, TFSAs and RESPs are all excluded from the deemed disposition. Canadian real estate remains taxable in Canada on actual sale (Article 13).
Article 18 and RRSP / RRIF Withdrawals
Article 18 is the most consulted provision in the treaty for Canadian olim. It permits Canada to tax pensions arising in Canada and paid to a resident of Israel, but caps the tax at the lesser of:
- 15% of the gross amount of a periodic pension payment, or
- the amount of tax the recipient would have paid had the payment been included in taxable income for the year (the "lesser-of" floor protects low-income recipients from being worse off under the treaty).
For RRSP and RRIF withdrawals, the practical position is:
- Periodic RRIF payments (the minimum mandatory withdrawals from age 71 onward, plus elected periodic withdrawals at any age) are treated as periodic pension payments and benefit from the 15% cap. CRA generally accepts that RRIF minimum payments are periodic.
- Lump-sum RRSP withdrawals are not periodic payments and remain subject to 25% Canadian Part XIII withholding under domestic law. The treaty does not cap lump sums at 15%.
- RRSP-to-RRIF conversion is the standard planning move to access the 15% rate. Convert the RRSP to a RRIF (typically before drawing) and arrange withdrawals on a periodic schedule rather than as ad-hoc lump sums.
- NR301 must be filed with the Canadian financial institution holding the plan. Without it, the institution applies the 25% default rate. The reduced rate does not flow automatically.
On the Israeli side, RRSP and RRIF distributions are foreign-source pension income. During the 10-year exemption (section 14), Israeli tax is zero. After year 10, RRSP / RRIF distributions are taxable in Israel; the treaty allocates source-state tax to Canada (capped at 15%), and Israel grants a credit for Canadian tax under Article 22. The optimal strategy for olim is normally to draw down the Canadian retirement account during the exemption window, paying the 15% Canadian withholding and zero Israeli tax, rather than waiting until both countries can tax the income.
CPP and OAS Under the Treaty
The Canada Pension Plan (CPP) and Old Age Security (OAS) are public pensions paid by the Canadian government. Under Article 18, both are subject to the same 15% periodic cap as private pensions. Two separate considerations apply:
- OAS clawback: if your worldwide income exceeds the threshold (around CAD 90,000 in 2025), the OAS recovery tax reduces or eliminates OAS payments. The clawback is a domestic Canadian rule and operates regardless of treaty residence.
- OAS residence requirement: 20 years of Canadian residence after age 18 are required for OAS to continue past six months of absence. The Canada-Israel social security agreement (separate from the tax treaty) allows years of Israeli residence to count toward this threshold. Apply through Service Canada’s International Operations division.
On the Israeli side, CPP and OAS are pension income; during the 10-year exemption they are exempt in Israel.
TFSA and RESP After Aliyah
TFSA and RESP are not pensions and are not within Article 18. From the Canadian side both can remain open after emigration but contribution room stops accruing and TFSA contributions while non-resident incur a 1%-per-month penalty tax. From the Israeli side, the TFSA is not a recognised tax-sheltered vehicle. During the 10-year exemption the distinction is academic; after year 10, growth and gains in a TFSA may be taxable under Israeli rules. Many Canadian olim plan to draw down TFSA balances before year 11.
RESP rules are even more complex: the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) are clawed back if the named beneficiary does not attend a qualifying institution. Most Israeli universities qualify under CRA rules for post-secondary institutions outside Canada (programs of at least 13 consecutive weeks). Confirm with Service Canada and your RESP promoter before assuming continuation.
Form NR301 and Treaty Rate Mechanics
Treaty rates do not apply automatically. Canadian payers (banks, brokers, RRSP/RRIF custodians, Canadian dividend-paying companies) default to the 25% Part XIII rate unless the recipient files Form NR301, the CRA Declaration of Eligibility for Benefits Under a Tax Treaty for a Non-Resident Taxpayer.
Practical sequencing for an oleh:
- File Form NR73 (Determination of Residency Status) with CRA on departure if you want formal CRA confirmation of your non-residence date. NR73 is optional; many cross- border CPAs prefer not to file it because it can trigger a residency review.
- Provide each Canadian institution with Form NR301 once you have an Israeli address and tax ID. NR301 is valid until cancelled or until the institution requests an updated version (typically every three years, or whenever facts change).
- Request a CRA Section 116 clearance certificate before selling Canadian "taxable Canadian property" (most often, real estate). Without the certificate the buyer must withhold 25% of the gross sale price.
- File a Section 217 election if you have low Canadian-source pension income and are better off being taxed at graduated rates rather than at the 15% withholding rate. The election is made with the Canadian non-resident tax return.
Capital Gains and Canadian Real Property
Article 13 reserves Canada’s right to tax gains on Canadian real property even after the seller becomes Israeli-resident. Key points for olim:
- Section 116 clearance certificate is required before sale; absent the certificate, the buyer withholds 25% of gross proceeds.
- Principal residence exemption (PRE) can shelter the gain on a former Canadian principal residence, but the years claimed under PRE eat into PRE eligibility on any Israeli home you later designate. Coordinate with an Israeli adviser if you intend to designate an Israeli property as a principal residence in the future.
- Land-rich shares (private corporations whose value derives mostly from Canadian real estate) follow the real-estate rule, not the share rule. Typical Canadian small-business owners often need an Article 13 analysis at the cessation date.
Practical Checklist for Canadian Olim
- Decide cessation-of-Canadian-residence date with your CPA. File T1161 + T1243 with the departure-year T1.
- Crystallise capital losses before the deemed disposition date if loss harvest will offset deemed gains.
- Consider 220(4.5) deferral of departure tax for assets you plan to sell during the Israeli 10-year exemption.
- File NR301 with every Canadian financial institution holding non-registered or registered accounts; do not leave the 25% rate in place.
- Convert RRSPs to RRIFs before drawdown to access the 15% periodic-pension cap under Article 18.
- Plan TFSA drawdown during the 10-year window to avoid year-11 Israeli tax exposure on accrued growth.
- Apply for CPP / OAS through Service Canada International Operations; combine residence periods under the Canada-Israel social security agreement if you fall short of the 20-year OAS threshold.
- File the דוח שנתי (Doch Shenati) if you become Israeli-resident on or after 1 January 2026, even where the income is exempt from Israeli tax.
