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Whether they’re on the hunt for warmer weather, a more advantageous tax jurisdiction, or looking to cash in on higher property values in Canada in favour of a better cost of living elsewhere, more Canadians are exploring the possibility of enjoying their retirement years in another country.
The “dream” of retiring abroad is possible for most older Canadians, but this move is not one that should be made impulsively, advisors say. Avoiding costly tax and other issues means helping clients plan years in advance, and likely bringing other cross-border specialists on board.
While there has always been some interest from clients in retiring abroad, Willis Langford, co-founder and senior retirement income planner at Langford Financial Inc. in Calgary, has noticed an uptick in inquiries recently from pre-retirees looking to learn more about relocating overseas.
“I do think that people have created more wealth in the past two years,” says Mr. Langford, whose firm specializes in retirement income planning. “Real estate values have just escalated and also the stock market has had a 13-year bull run and created a lot of wealth for people over that time.”
Many individuals are looking to retire to countries close to Canada or with a more favourable cost of living, such as Mexico, Panama, or the U.S., he says. Another couple is considering Portugal’s “golden visa” option, which allows non-European Union residents who purchase real estate of more than €500,000 to live and work in the country.
For Canadian retirees looking elsewhere, government benefits are top of mind.
Mr. Langford says he fields questions regularly from individuals asking whether they’ll be able to collect the Canada Pension Plan (CPP) or Old Age Security (OAS) benefits from another country.
“The answer is yes. CPP is a pension plan, no matter where you go in the world, it’s yours,” he says. “There [are] some specific little nuances with the OAS, but if you’ve had at least 20 years in Canada, you can collect a portion of your OAS, no matter where you go.”
While moving abroad can be less complicated for some, depending on the level of assets, CPP eligibility is only one part of the equation.
In many situations, Mr. Langford says clients’ pre-planning process should involve a team approach – including their advisor, an accountant and a lawyer. It should also start long before their intended move to ensure they address the tax implications of becoming a non-resident.
For example, retirees who try to navigate this process without advice may not realize that on the day they leave Canada, they’re considered to have made a “deemed disposition” of certain assets such as shares and jewelry, and may have to report capital gains, he says.
“They end up with tax bills that they weren’t expecting. So, they have to deal with that,” he says. “There [were] ways they could have worked around that if they had some pre-planning.”
Withholding taxes on registered accounts
Jason Heath, managing director at Objective Financial Partners Inc. in Markham, Ont., works with several ex-pat non-resident clients. He also says real estate price increases in larger Canadian cities have presented a significant opportunity for some to cash out and move abroad.
Although the “sky is the limit” for where retirees might choose to live, he says clients need to start by determining the immigration requirements of living in another country and ensuring they’ve established the necessary health care or insurance coverage.
Aside from those factors, their major concern is taxation – both in terms of leaving Canada and earning retirement income in another jurisdiction, he says.
Indeed, non-residents cashing in a registered retirement savings plan (RRSP) to take the funds elsewhere will typically be subject to a 25 per cent withholding tax in Canada. Although this may be reduced by a tax treaty in place with the destination country.
“Depending on where somebody is moving, it may or may not be advantageous to cash in an RRSP. Oftentimes, people do end up leaving some assets in Canada, particularly tax-sheltered accounts,” he adds.
Periodic pension payments from a registered retirement income fund, CPP, OAS or defined-benefit pension plan are also subject to a Canadian withholding tax of 25 per cent, which may be reduced to 15 per cent depending on tax treaties.
Ultimately, it’s important for retirees to understand how their intended destination approaches the taxation of foreign income.
Some non-residents may consider taking a lump-sum withdrawal from their registered accounts, especially if they’ll be living in a tax-free jurisdiction or one that doesn’t levy capital gains taxes, Mr. Heath says.
“It is an important decision, given the loss of tax deferral and the big tax hit up-front,” he says.
Is it worth it to leave forever?
Along with residency, citizenship is another consideration for some clients.
John Woodfield, portfolio manager with Swan Wealth Management at Raymond James Ltd. in Kelowna, B.C., works with cross-border clients and those who have relocated abroad. In that role, he also often works alongside cross-border accountants to help clients put plans in place that aim to meet their tax and financial responsibilities, taking both their residency and citizenship into account.
For example, moving abroad can be more complex for individuals with U.S. ties.
“If you’re a U.S. person – even if you’re a Canadian citizen, you’ve worked in the U.S. and you have a green card – you have a responsibility to continue to file U.S. taxes,” he says.
Ultimately, Mr. Woodfield says he hasn’t seen a trend toward clients looking to retire abroad permanently, likely because they not only have to contend with tax issues but also health care costs and eligibility as well as security, inflation and foreign currency.
“There are a lot of little things, which is why I think most older people become snowbirds rather than completely selling out and making a wholesale move,” he says.
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