Personal Finance

Taxation issues can be complex.
By Gail Bebee | 16/01/17

Snowstorms, freezing temperatures, poor driving conditions, slips and falls and broken bones: there is much to dislike about a Canadian winter. Not surprisingly, the better weather and, in some cases, lower living costs of such destinations as Florida, Mexico, Costa Rica, Ecuador and Thailand have enticed thousands of Canadians to relocate abroad once they retire. While the idea of living in a warmer clime is attractive, taking up residence in another country is a complex process. Before relocating, it is crucial to understand the full impact of moving abroad.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

Will a prospective country provide the kind of life you envisage? Besides favourable climate, is the cost of living reasonable, and is it safe and politically stable? Can you access quality health care, suitable accommodation, decent transportation and reliable financial services? What about food availability and safety? Is there dependable Internet service? What is the culture like? Will you be able to communicate with the locals? What are the country's entry requirements and would you qualify to live there? Research is essential before deciding to live in another country.

An online search will yield many books and articles on retiring abroad. Ex-pat websites and blogs such as Future Expats Forum, Transitions Abroad and Expat Exchange are good sources of practical information on living in specific countries.

The federal government's Living abroad portal claims to offer "Everything you need to know to prepare to leave Canada to live in a foreign country." This includes the very useful publication Living abroad -- A Canadian's guide to working, studying, volunteering or retiring in a foreign country.

One important issue to clarify before relocating to another country is your residency status once you live abroad.

If you intend to be a seasonal ex-pat such as a snowbird who winters in Florida, or if you retain ties with Canada such as maintaining a home or visiting regularly, you are likely to be considered a Canadian resident for tax purposes. This means you will be subject to Canadian income tax, and may qualify for the applicable provincial health care depending on how long you remain out of the country. As well, Canadian embassy/consulate officials will be available if you run into trouble while abroad.

A retiree who does not plan to return regularly to Canada may wish to become a permanent resident, or even a citizen, of another country. This decision is often driven by anticipated income-tax savings.

The default withholding tax on income earned from Canadian sources while residing outside of Canada is 25%, but it could be lower if Canada has a tax treaty with the destination country. For the rate that applies to a specific country, consult this Canada Revenue Agency information circular.

"The expectation of lower taxes should not be the principal reason to relinquish Canadian residency," says accountant Laura McLeman of Citizen Abroad Tax Advisors. "Depending on your effective tax rate in retirement and the country in which you choose to reside, the tax savings for the average Canadian retiree may not be meaningful. In certain circumstances, you could actually pay more tax."

Of more significance are the cost to give up Canadian residency and the overall cost of living, financial security and quality of life in the chosen country. You must be able to qualify for residency in that country. Then, there are the obligations the country imposes on its residents. What taxes will you pay? Are there restrictions on currency flows? If you become a citizen, will consular services be available in countries where you might travel?

If you are a Canadian with dual citizenship who chooses to retire in the country of your other citizenship, you could be subject to the laws and regulations that apply to citizens of that country, even if you travel with a Canadian passport. Some countries do not legally recognize dual citizenship. As such, all the laws of that country will apply to you. As well, Canadian consular officials may be unable to assist you if you need help, especially if you are incarcerated.

If you live abroad but maintain significant residential ties in Canada, the Canada Revenue Agency may consider you a factual resident for tax purposes, and your income will be taxed as if you never left. You may be able to maintain these ties and be deemed a non-resident if Canada has a tax treaty with your new country. However, to avoid paying Canadian income tax on your worldwide income, severing your residential ties with Canada may be necessary.

CRA determines non-residency on an individual basis and considers several factors, among them:

  • You do not maintain a dwelling place in Canada;
  • Your spouse or common-law partner does not live in Canada;
  • You have no dependants living in Canada;
  • You dispose of personal property and break social ties in Canada, and acquire or establish them in another country.

Your Canadian tax bill for the year you cease to be a resident of Canada could be substantial. You will owe capital-gains tax on the deemed disposition of certain assets you owned when you left Canada. There are significant exemptions to this so-called departure tax, including Canadian real property, pensions, RRSPs, RRIFs, RESPs and TFSAs. However, shares and personal-use property such as a vehicle, paintings, jewellery or a coin collection are not exempted.

Taxation of Canadians who move or have moved abroad is complex. Anyone planning to give up Canadian residency would be well advised to seek the advice of an accountant with expertise in tax planning for emigration from Canada and post-emigration expatriate issues.

Before making a final decision on your new home abroad, visiting the country you have in mind is mandatory. An extended stay in the community where you would like to live is preferable. This gives you enough time to complete an on-the-ground evaluation of local facilities and services, talk to ex-pats in the area and gain a realistic appreciation of the local lifestyle.

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