People move from one country to another for many different reasons. Job changes, secondments, the pursuit of education, retirement, or repatriation to one’s home country are but a few examples of the reasons people might move to, or from, Canada. This article will summarize things for Canadians to consider before making an international move.
Assuming you have landed your dream job abroad, one of the most important things to consider is your destination country’s immigration or visa requirements. For countries with close ties to Canada, such as the United States, there are all sorts of outfits and consultancy firms that can walk you through not only the types of work visas available to departing Canadians, but also the application process. Some employers even offer support in terms of the planning, education, and cost. Making sure you are legally eligible to work in your host country is paramount.
Weather and lifestyle are obviously important things to consider (perhaps the most important things to consider), but a strict financial consideration would be your destination country’s cost of living. Not only is it important to familiarize yourself with the exchange rate between Canadian dollars and your host country’s currency, but also to consider the exchange-adjusted cost of living in your destination country and neighbourhood. In other words, it’s important to know how much things cost where you expect to spend your money. Not everyone spends money on the same things, so it’s important to calculate what your budget looks like in the host country currency, and to compare that with your budget in adjusted Canadian dollars. If you have worked the majority of your career in Canada and are retiring elsewhere, then it is likely that your retirement income will continue to be denominated in Canadian currency.
Pre-departure planning (banking, emergency fund)
In this day and age, setting up bank and financial accounts might seem easy, what with the availability of online financial services. That said, one thing some people fail to consider when planning an international move is their credit. If you have never borrowed money in a foreign country, then you won’t have a credit rating there, and your host country may not accept the credit that you’ve accumulated in your home country as a means to, say, apply for a U.S. dollar or euro-denominated credit card. It’s important to have a plan in place that will facilitate your spending in the early days. This allows you some time to build up a credit rating in your destination country. Your strategy should include a budget for the first few months, a plan to establish financial accounts including credit, and an emergency fund to accommodate for unforeseen expenses.
Fiscal / tax residency
Becoming a non-resident for tax purposes is not the same as giving up your citizenship. Most countries tax their residents on their worldwide income. In other words, Canadian tax residents will pay income tax on their worldwide income at the CRA’s rates (Canadian tax less applicable credits for foreign withholding), U.S. residents will pay income tax on their worldwide income at IRS rates, and so on. If you are moving from a high-tax country to a low-tax country, this could be a win as you may be able to break ties with a high-tax-rate country like Canada, and establish ties in a lower-tax-rate country. A preliminary income tax consultation with a tax specialist, from both your home and destination country, is highly recommended.
Canadian tax residency can be maintained in two ways – if you ‘sojourn’ here in Canada (i.e., if you spend more than 183 days here in a given calendar year), or if you have sufficient ‘factual ties’ here in Canada. Factual ties can include a house, spouse, children, etc. Careful consideration needs to be given to your Canadian factual ties, as the CRA might not agree with the position you have taken. Again, consultation with an expert is recommended.
Another thing to consider if you plan to break Canadian tax residency is the Canadian departure tax. Leaving Canada entails a deemed sale of all your non-registered investment assets. This deemed sale occurs at fair market value as of the date you break residency, which means that if your non-registered investment assets have appreciated in value, you will have to pay tax to the CRA on the appreciation, whether you actually sell the securities or not. There are elections available to defer departure tax if you post security with the CRA, but consultation with a Canadian tax specialist is advised so that you understand and quantify your departure tax exposure prior to making your move.
RRSPs, TFSAs, RESPs and your principal residence are not subject to this deemed sale, but all those things can be taxed very differently by your destination country. The Canadian side of things might be straightforward, but consultation with a cross-border specialist is, again, highly recommended. As an example, most people don’t realize that if they move from Canada to the United States, the annual income earned within their TFSA becomes taxable – not by the CRA, but rather, the IRS.
Departing Canadian tax residents must file a tax return in the year of departure, reporting worldwide income up to the date that you ‘break’ Canadian tax residency.
Non-Resident Withholding Tax
After an individual breaks Canadian tax residency, they are still subject to Canadian tax on any Canadian-source income they earn (including Canadian pensions and dividends from Canadian corporations). Standard withholding rates apply, and you will typically get a credit in your new country of residence for any Canadian tax withheld. One other thing to note is that if you leave Canada for another country with which Canada shares a tax treaty, the Canadian withholding rates on your Canadian-source income are typically reduced.
As noted above, most countries administer income tax based on residency. One glaring exception to that is the United States. U.S. taxes are based on both residency and citizenship. That means U.S. citizens must file annual tax returns every year regardless of where they reside, and yes, their worldwide income needs to be reported on their annual U.S. tax return. Now, that doesn’t necessarily mean that annual U.S. tax filers are going to have to pay any U.S. tax, as they typically receive a credit for a source country’s income tax. For example, if you pay Canadian tax on a Canadian pension plan, you’ll get a credit for the Canadian tax that you’ve paid on that pension income, which can be applied against the U.S. tax calculated on your U.S. tax return.
Some investments can and should remain in Canada, particularly Canadian RRSPs if you are moving to a country like the United States. Canadian RRSPs work beautifully on both sides of Canada’s southern border. Other investments, such as TFSAs, RESPs, and non-registered accounts can pose problems if you move abroad. Contact us if you require assistance ascertaining which accounts can continue to serve you if you move abroad.
Where to settle
There are several things to consider depending on what stage of life you’re in. If you have kids, the school district, neighbourhood, and availability of amenities become important. If you’re approaching retirement, the cost of health insurance and standard of care in your destination country become important. If you don’t drive, public transportation becomes important. Basically, your hobbies and lifestyle should dictate what to look for in a destination.
As a proud Canadian, I feel spoiled by the services we have. Don’t get me wrong, I like warm weather and dislike paying excessive income tax as much as anybody, but there’s something to be said for high-quality healthcare, safe neighbourhoods, and a solid education system. If in spite of all that you decide that the grass is greener elsewhere and would like to begin planning your international move, we can help you through it.
Brent Soucie, Vice President & Consultant,
T.E. Wealth, Toronto
This article was published in T.E. Wealth’s Strategies newsletter, March 2018 edition. Read the full edition here.