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It’s a dreamy idea to be a snowbird: skipping out on winter and spending the colder half of the year in sunny destinations in the southern United States or Mexico.
But seniors who opt for this lifestyle could find themselves buried under loads of unexpected tax paperwork if they don’t make the necessary preparations, says Stefanie Ricchio, a tax expert and spokesperson for Turbotax Canada.
That’s because splitting your time and possibly your assets between two countries can make for a complicated financial situation in which you have to file taxes to both governments.
Statistics Canada estimated in 2019 that between 300,000 and 375,000 Canadians live the snowbird lifestyle in the U.S. and Mexico alone. This arrangement comes with its own tax implications, so we spoke to Ms. Ricchio and Yannick Lemay, a tax specialist with H&R Block, to compile some tips if you plan to spend more time down south.
Consider limiting your days abroad
If you spend more than 183 days in the U.S., you’ll have to file a tax return in the country. This doesn’t necessarily mean you’ll have tax owing, especially if you don’t receive income in the U.S. However, it can still be a large headache in terms of the paperwork required to prove you don’t owe tax in the United States.
Having to pay tax in the U.S. doesn’t necessarily mean you’ll pay tax twice. But be prepared for a headache
The U.S. and Canada have a tax agreement that essentially prevents people from paying tax on a source of income in both countries. However, Canadians still have to declare any U.S. income on their Canadian tax return, before using a tax credit that offsets that income. It can be a complicated process where Ms. Ricchio recommends getting help from a tax expert.
Think twice before you go outside the States
Canada and the U.S. have close ties and well-established tax procedures between the two. However, it’s vital to look into the tax implications of spending your winters in other locations, such as Central America or Southern Europe.
Get informed about the tax implications around whether you rent or buy your home
When it comes to taxes, Ms. Ricchio says renting a winter home is the simplest way to go. However, if you want to create stronger roots as a snowbird, owning your home is fine too.
Just keep in mind that if you rent out your home in the summer months where you’re back in Canada, you’ll have to put some of that money aside for your tax bill.
Ms. Ricchio says in the U.S., if you rent out your property for more than 15 days in a year, you’ll be subject to a 30-per-cent withholding tax on the income.
Remember to deduct health insurance and foreign health care costs
As a snowbird, you’ll have to make preparations around health insurance for the time you’re abroad. Those insurance costs, as well as any extra costs that you pay out of pocket at a clinic or hospital, are all tax deductible for your Canadian tax return.
Insurance can extend to thousands of dollars in cost for folks who are older or who have health complications, so it’s imperative that snowbirds remember to deduct those expenses.
However, Mr. Lemay says travel insurance for trip interruption and cancellation cannot be deducted.
Consult a tax professional early when planning your snowbird life
Your decisions around the life you build abroad can come with large unforeseen tax consequences. There are all sorts of variables, such as the jurisdiction you choose to spend your time in or your decisions around buying or renting, which have their pros and cons.
Ms. Ricchio says people should consult a tax expert early in the planning process so they can ensure their plans are financially viable and so they’re aware of the duties they’ll have when filing taxes.
Note that the Canadian tax deadline is around the same time many snowbirds return to Canada
Most snowbirds return to Canada in the spring, and Mr. Lemay points out that the Canadian and American tax deadlines are around this time (Canada’s tax deadline is April 30 this year).
While it’s possible to do your taxes entirely remotely, Mr. Lemay says snowbirds should be aware of this deadline so they aren’t left scrambling and stressing over paperwork right at the end of a relaxing winter.
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Salmaan Farooqui