A vacation property in Phuket, Thailand
Warm-weather hideaways are attractive for retirees, especially high-net-worth people seeking lower taxes, low costs of living and a spectacular climate.
At the same time, the Canadian government has clamped down on tax havens, and Canada Revenue Agency confirms that it is reviewing the so-called Panama Papers, a data leak of offshore corporations and trusts, says Ron Choudhury, a corporate tax partner at Miller Thomson in Toronto who specializes in tax planning for wealthier individuals.
"There's a difference between evasion and legitimate tax planning," he cautions.
Tax advantages and implications are complex, so it's best to seek advice from qualified professionals, both in Canada and the place you're thinking of residing. It's also important to have a good look at the rules surrounding residency, bilateral tax treaties and tax information exchange agreements.
"Lower or no taxes are obviously a big pro, however other considerations need to be taken into account," says Tina Tehranchian, a certified financial planner who is the branch manager and senior financial planner at Assante Capital Management Ltd. in Richmond Hill, Ont. "Issues include safety, political stability, quality of health care and education, climate, cost of living, arts, culture and entertainment, language, similarity and compatibility of cultures and ease of travel back and forth to Canada."
Ms. Tehranchian notes that Canadians retiring outside the country should take a good look at estate planning and have separate wills for each jurisdiction.
She notes that many "off the radar" tax havens do not have zero tax, but rates are still less than in Canada, where those in the highest brackets pay more than 50 per cent.
These countries also have breaks for businesses. "Corporations are always looking for ways to reduce their taxes, and moving their operations or their head office to low-tax havens is one of the ways that they can achieve significant savings and improve their bottom lines," Ms. Tehranchian says.
Mr. Choudhury adds that lower taxes can be offset by a higher cost of living and other challenges. He advises clients with a sense of adventure to spend time in prospective off-the-beaten-track destinations and evaluate them. After they make a decision, they should ease into their new life over time.
"These are quite different places and ways of living," he says. "I don't think you want to jump in and retire all at once there."
Here are a few of the top low- or no-tax destinations for wealthy Canadians.
Malta
This densely populated, independent republic, an archipelago in the central Mediterranean between Sicily and the North African coast, has a warm climate, many recreational areas and three UNESCO World Heritage Sites. Residents are taxed only on income from local sources.
Personal tax rate: 35 per cent, although no tax is levied for revenue obtained abroad. There is a tax information exchange agreement in force with Canada.
Corporate tax rate: Effectively 0 to 5 per cent, once tax credits and exemptions are factored in.
Pros: English is one of the two official languages (the other is Maltese). Malta is also relatively affordable and has a moderate climate and a developed, stable economy. It's a member of the EU and uses the euro. It's effectively much like Italy.
Cons: It's highly bureaucratic, and winters can be chilly. Maltese citizenship comes through a longer citizenship-by-investment program or investments in Malta worth about €1-million.
Uruguay
This small coastal South American country, nestled between Argentina and Brazil with stunning views of the Andes, is politically stable. Becoming a legal resident is relatively simple; once you have permanent-resident status, you keep it as long as you do not live outside of the country for more than three years.
Personal tax rate: Up to 30 per cent, but lower for capital gains and passive income. There is a tax information exchange agreement in force with Canada.
Corporate tax rate: 25 per cent (foreign-source income may be exempt).
Pros: It's very cheap to live here. It has a sound banking system, and it's just over the border from Buenos Aires and other parts of Argentina.
Cons: It has a different language, lifestyle and culture, and it's not as developed as the Caribbean or Europe. It's also far from Canada.
Panama
This Central American country's Pensionado program grants permanent-resident status to retirees who have a government or corporate pension of at least $1,000 (U.S.) a month. The program subsidizes hospital visits, medicine, property taxes, auto taxes, day-to-day costs and much more for retirees, regardless of age.
Personal tax rate: 25 per cent. There is a tax information exchange agreement in force with Canada.
Corporate tax rate: 25 per cent.
Pros: Very low cost of living, good weather, relatively stable politics. It's also becoming popular as a tourism destination, bringing leisure opportunities.
Cons: Different language, lifestyle and culture; personal security issues; not as developed as the Caribbean or Europe.
Monaco
It's typically home to the super-rich, including tennis players and film stars. Though real-estate prices in this tiny principality are high, it has not charged residents income tax since 1869. It also has low corporate taxes and is just steps away from France and Italy.
Personal tax rate: 0. There is no tax treaty or tax information exchange agreement in force with Canada.
Corporate tax rate: 0 per cent for profits generated within Monaco; 33.33 per cent if more than 25 per cent of company turnover is generated outside Monaco.
Pros: The official language is French, but most residents speak English. This playground of the wealthy (one-third of its 40,000 residents are millionaires) is safe and stable. It's also strategically located and has good health, education, public transportation and other social services.
Cons: It has extraordinarily high real-estate prices and other cost-of-living issues.
Thailand
With its friendly and engaging people, extraordinarily beautiful landscape and strategic location in Southeast Asia, Thailand is a low-cost and relatively low-tax destination with plenty to do.
Personal tax rate: Up to 35 per cent. There is a tax treaty in force with Canada.
Corporate tax rate: 20 per cent.
Pros: Significant use of English and a cheap cost of living. Many ex-pats from Britain and Australia live there, and it's a big tourist destination.
Cons: It's hot and humid at certain times of the year, and there's frequent political turmoil, although it doesn't greatly affect daily life. Canadians might also face security issues, with ex-pats especially running into trouble in the tourism sector. It's also far from Canada.
Qatar
Qatar is spending a lot on infrastructure and development, especially in the capital of Doha, and will host the 2022 FIFA World Cup. It is becoming an option for people looking to retire in the Middle East who feel the United Arab Emirates has become too fast and expensive, like New York or London. Recent and tense political difficulties with its neighbours, including Saudi Arabia, however, will probably take it off the list of prospective destinations for wealthy people, for now.
Personal tax rate: 0. There is no tax treaty or tax information exchange agreement in force with Canada.
Corporate tax rate: 10 per cent.
Pros: Widespread use of English. Many ex-pats from Europe and Britain live here, which brings services and attractions.
Cons: The climate is extremely hot. The cost of living is relatively high, and it has different societal norms for dress and alcohol. It also has restrictions on running companies there. And it's far from Canada.