Personal Finance

Is it true that spending retirement outside of Canada means less taxes to pay?

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  • Mar 2nd, 2018 10:07 am
[OP]
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Apr 21, 2004
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Is it true that spending retirement outside of Canada means less taxes to pay?

Seems the taxing issues relate to losing provincial health coverage. Will these benefits apply if we retire elsewhere outside of the US?

Increase your retirement nest egg by spending more time south of the border
https://www.theglobeandmail.com/globe-i ... e38127593/


February is RRSP season, and that means thinking about retirement. In the 21st century, Canadians are living longer, private pensions are less common and inflation continues to erode purchasing power.

Canadians are crunching the numbers and fearing that they may not have enough to retire and live the lifestyle they want. If spending less or working more do not sound attractive, consider another way to make more of your retirement nest egg: pay less tax.

Registered retirement savings plans (RRSPs) are great retirement savings vehicles. Depending on your income level and which province you live in, you get a tax deduction of up to 54 per cent when you make a contribution. Your money then grows, tax-deferred. Eventually, upon withdrawal, funds in the RRSP are subject to tax at the same high marginal rates of up to 54 per cent.

Many Canadians are surprised to hear that Canada taxes those who become non-residents much more favourably than those who remain Canadian tax residents. For example, non-residents of Canada who move to the U.S. can withdraw their RRSPs at much lower tax rates. Rather than pay tax at the top marginal rate of 54 per cent mentioned above, Canadians who become U.S. residents can withdraw from their RRSPs at 25 per cent. With proper planning, the tax rate can drop even lower – to 15 per cent. On a $1-million RRSP, that is a savings of nearly $400,000 of tax. Furthermore, there are opportunities to characterize the tax paid to Canada as a foreign tax credit, which can be used in future years as a way to grind the tax bill down even further.

Another advantage Canada gives to its non-residents involves the Old Age Security pension (OAS). At age 65, Canadians are eligible to receive approximately $7,000 per year if they have spent enough of their adult life as Canadian residents. Unfortunately, many Canadians never receive this annual benefit, because they are subject to something known as OAS clawback.

If you speak to those affected by it, the clawback is as painful as it sounds. if a Canadian's income exceeds a threshold amount ($74,788 for tax year of 2017), they have to repay part or all of their OAS pension benefit in the form of a recovery tax commonly referred to as "clawback."

Once again, Canadian expats enjoy favourable tax treatment since Canadians who move to the U.S. are not subject to OAS clawback. For a Canadian couple, avoiding clawback amounts to additional income of about $14,000 per year.

Moreover, since Canada's tax system is based on residency, Canadians are no longer taxed by Canada on their worldwide income after they exit the country for tax purposes. Canadians who have departed will have no trouble getting used to the lower income tax rates in the U.S.

For example, someone who moves from Ontario to Florida would go from a top rate of 53.53 per cent (which kicks in at $220,000) to a top rate of 37 per cent (which kicks in at US$500,000, or US$600,000 if filing jointly with a spouse).

Not everyone can take advantage of these strategies. First, to substantiate an exit from Canada, you need to obtain a U.S. visa or green card allowing you to spend more time in the U.S. Health care planning is also a must, as exiting Canada from a tax perspective means giving up eligibility for Canadian health insurance. Finally, you need a well-thought-out cross-border tax and financial plan to deal with various hurdles along the way, such as Canadian departure tax and U.S. estate tax.

Remember, exiting Canada for tax purposes doesn't mean you stop being Canadian. You can always keep your Canadian citizenship, enjoy summer months north of the border and cheer on your favourite Canadian hockey team.

So the next time you are staring in the mirror and asking the question, "How am I going to reach my retirement goals?" look south of the border, and you just might find your answer.
21 replies
Deal Addict
Aug 30, 2011
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Ottawa
Quality of life is worth something. I would never retire to the US in order to save money. I don't even visit, I prefer Mexico or Cuba.

Also, how can the few $ saved with your approach offset the $100,000+ for treatment for a heart attack or cancer?
Deal Addict
May 12, 2014
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Yes it's true, as it should be: non-residents no longer use Canadian public health insurance, nor roads, police, firemen, etc.

Of course they still pay tax on Canadian source income (ie income generated by assets which do rely on Canadian police, courts, roads, etc.)
Deal Addict
Jul 3, 2017
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Does this depend at all on whether your new country of residency has a tax treaty with Canada?

I assume that you still have to pay tax in your new country of residence, which may have its own rules about money received from foreign investments, and which may or may not give you a tax credit for taxes paid in Canada (probably not if there's no tax treaty in place).

I would guess that people doing this "shop the world" in order to find the best compromise tax jurisdiction which also offers easy qualification for residence, low retirement cost and quality of life.
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Oct 16, 2002
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The article exaggerates and conflates.
"top marginal rate of 54" is not the same thing as 54% rate overall.
Secondly:
"On a $1-million RRSP, that is a savings of nearly $400,000 of tax". That line only makes sense if one were to withdraw the complete 1 million account in just one year.
Of course anybody with that much money knows perfectly well not to do that. Instead they would withdraw $50,000 per year over 20 or more years and the tax would pretty minimal, somewhere less than 20%.

There might be financial advantages to become a non-resident but nowhere near what is claimed in the article.

Pretty manipulative article.
Deal Addict
Jan 20, 2016
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methyl wrote: The article exaggerates and conflates.


Pretty manipulative article.
I do agree, as many (if not most) from MSM like GM...

BTW you do not need to be 20 years specifically in Canada
lived and worked in a country that has a social security agreement with Canada and you meet the 20-year residence requirement under the provisions of that agreement
Living in US and paying taxes here also count to this term

Medicine it could be an issue, however seniors have some help due to Medicare, but monthly insurance could be $200-$500 (2-5k yearly) and you will pay few grands over it in co-pays, deductibles and co-insurance...

What could work for 1M+ RRSP holders - become a non-resident for year or two, grab your RRSP for 25% and then come back to Canada :)

Another issue GM tried to avoid to mention - you need GC to become a resident, or TN visa if senior could qualify for it lol
You cold not just come to US and live here to count as resident (besides the CRA rules on top of it)

Snowbirding could be easily done and you will not loose an OHIP with proper planning, but becomig non-resident (in US) - not so fast...
Maybe Mexico or Caribbean (but good places are not cheap on Carib's..)
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Oct 16, 2002
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asa1973 wrote:
What could work for 1M+ RRSP holders - become a non-resident for year or two, grab your RRSP for 25% and then come back to Canada :)
Yeah, interesting strategy, however, even that doesn't work with the example in the article -specifically Florida/US. The article itself quotes that you'd still pay up to "top rate of 37 per cent".

If one found a jurisdiction that:
1) is covered by double taxation treaty
2) has income tax rates less than or equal to 25% on large amounts
3) allowed one to become a resident
Perhaps then the money can be freed up from RRSP at a cost of one time charge of 25%. But it's nothing as simple as the article claims and doesn't look like US fits the bill in any case.

Bahamas looks interesting though. "The annual residence permit fee is $1,000 Bahamian dollars per head of household (about $1,300 Canadian) plus a small fee for dependents"
https://www.theglobeandmail.com/globe-i ... e29937113/

One concern though - if there are holdings in non-registered accounts you'd need to pay capital gains taxes before you can even become a non-resident. Could be significant $$$
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Dec 8, 2010
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What's the deal with OAS, exactly? You must have lived in Canada 20+ years and the years prior to full retirement in order to get it if retiring overseas? I did read up a bit but got a bit confused with non-full OAS pensions AND retiring abroad.
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daverobev wrote: What's the deal with OAS, exactly? You must have lived in Canada 20+ years and the years prior to full retirement in order to get it if retiring overseas? I did read up a bit but got a bit confused with non-full OAS pensions AND retiring abroad.
I think yes 20+ for portability where ever we live.

40 years maximum payment. We need to substantiate all these four years so I'm gathering up lots of docs lol and putting them in a bankers box for each family member.
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Jan 2, 2012
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alanbrenton wrote: Moreover, since Canada's tax system is based on residency, Canadians are no longer taxed by Canada on their worldwide income after they exit the country for tax purposes.

Not everyone can take advantage of these strategies. First, to substantiate an exit from Canada, you need to obtain a U.S. visa or green card allowing you to spend more time in the U.S.
Article seems flawed and very badly researched. Quoted are the 2 main sticking points.

1. Simply leaving Canada for extended duration does not automatically make you a non-resident for tax purposes. Non-residency requires additional steps like severing most of your ties to Canada, as well as assuming you intend to permanently sever ties and will not move back. Many snowbirds who attempt to retire in the US but still need to come back due to visitor status issues in the US, may not be seen as non-residents by the CRA since they must maintain Canadian ties to be allowed into the US as visitors in the first place.
https://www.canada.ca/en/revenue-agency ... tatus.html

2. As far as I know (correct if I'm wrong), no such visa, green card, status etc exists, for Canadians wising to retire in the US. They will need to enter US as vistors same as everyone else, and will be expected to leave when their status is up. At some point, if the US feels a Canadian visitor is attempting to live in the US permanently, they can deny them entry.
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rob444 wrote: Article seems flawed and very badly researched. Quoted are the 2 main sticking points.

1. Simply leaving Canada for extended duration does not automatically make you a non-resident for tax purposes. Non-residency requires additional steps like severing most of your ties to Canada, as well as assuming you intend to permanently sever ties and will not move back. Many snowbirds who attempt to retire in the US but still need to come back due to visitor status issues in the US, may not be seen as non-residents by the CRA since they must maintain Canadian ties to be allowed into the US as visitors in the first place.
https://www.canada.ca/en/revenue-agency ... tatus.html

2. As far as I know (correct if I'm wrong), no such visa, green card, status etc exists, for Canadians wising to retire in the US. They will need to enter US as vistors same as everyone else, and will be expected to leave when their status is up. At some point, if the US feels a Canadian visitor is attempting to live in the US permanently, they can deny them entry.
True but you can elect to be a non-resident, right? Totally agree you have to get rid of your bank accounts, driver's license, residence and maybe renounce your Canadian kids too. :)

I wonder if one hand of the government is synced with the others.

I don't think it's just the US though but any country with some treaty, which is probably safe to say majority of where our immigrants are coming from.
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alanbrenton wrote: True but you can elect to be a non-resident, right? Totally agree you have to get rid of your bank accounts, driver's license, residence and maybe renounce your Canadian kids too. :)
The CRA must approve your non-residency claim.
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rob444 wrote: The CRA must approve your non-residency claim.
If one wanted to save money, I think selling property, closing bank accounts and swapping driver's license is all that's needed.

Good point from another member about doing all that, withdrawing funds and then coming back a few years after, lol.


https://www.canada.ca/en/revenue-agency ... anada.html
Residency status
Non-residents
You are a non-resident for tax purposes if you:

normally, customarily, or routinely live in another country and are not considered a resident of Canada; or
do not have significant residential ties in Canada; and
you live outside Canada throughout the tax year; or
you stay in Canada for less than 183 days in the tax year.


Didn't know one had to surrender the Canadian passport, haha.
https://www.canada.ca/en/revenue-agency ... tatus.html

Significant residential ties to Canada include:

a home in Canada;
a spouse or common-law partner in Canada; and
dependants in Canada;
Secondary residential ties that may be relevant include:

personal property in Canada, such as a car or furniture;
social ties in Canada, such as memberships in Canadian recreational or religious organizations;
economic ties in Canada, such as Canadian bank accounts or credit cards;
a Canadian driver's licence;
a Canadian passport; and
health insurance with a Canadian province or territory.
To determine residence status, all of the relevant facts in each case must be considered, including residential ties with Canada and length of time, object, intent, and continuity while living inside and outside Canada.
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You can also be non resident by becoming resident elsewhere.

If I was to move anywhere it would be back to the UK, and there is no ambiguity AFAIK - if you are resident of the UK (by being there more than 183 days or whatever), then you cannot be resident of Canada.

Of course I could be confusing tax vs other residency but still. I think living and paying tax in the UK would make you non Canadian resident even if you had these 'primary ties'. Not that I would. But still.

Long time off though.

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