Say Olé to Mexico
You can cut your cost of living and make your retirement dollars stretch further if you go outside Canada or the United States. Mexico is a popular destination for many Canadian seniors. Here are things you need to know if you’re considering a move.
Q: What are the pros and cons of retiring to Mexico?
A: Mexico is a large and diverse country. It’s almost three times the size of Texas and has a population of 106 million. This means you’ll find lots of options when it comes to lifestyle, weather, geography, cost of living and access to English-language services.
While the coastal beach resorts are a draw for tourists, they can be very hot in summer. Many retirees prefer inland cities, which are cooler since they’re at higher elevations. About 20,000 Canadians live in Ajijic and Chapala, about a half-hour drive south of Guadalajara.
Crime and personal safety are always a concern. You must take care in everything from public displays of jewelry to hailing cabs, says Gordon Pape in The Retirement Time Bomb (Penguin, 2005). Driving at night is discouraged on remote roads. Stray animals, poorly lit vehicles,otholes and pedestrians add to the danger.
Q: What happens with my taxes?
A: Canada has a tax treaty with Mexico. This means you probably won’t pay tax on the same income in both countries. If you’re a non-resident, you will be taxed only on your Mexican-source income. You can save a significant amount if you become a resident of Mexico for tax purposes. This involves leaving Canada on a permanent basis and severing your residential ties. An accountant specializing in cross-border issues can help you do it properly.
Before 2004, you needed to be in Mexico 183 days a year to be considered a resident. Now you’re a resident if you have established a home in Mexico, no matter how long you spend there. If you have homes in two countries, you’re deemed to be a Mexican resident if more than half your income is derived from Mexican sources.
While average Canadians pay a 30 per cent tax rate on their retirement income, “You can pay 15 per cent in Mexico if you set things up properly,” says Rod Burylo, educational director of Canadians Retiring Abroad Ltd. (www.cdnsretiringabroad.com). The tax rate may be as low as zero when you cash in your non-registered investments.
You won’t avoid all income taxes in Mexico. But if you’re willing to pay your fair share, you’ll find that by planning effectively, you may pay less than you did back home. For more information, go to Solutions Abroad at www.solutionsabroad.com/a_mexicantaxes.asp.
Q: What about health care in Mexico?
A: You’ll be covered by your provincial health-care program if you’re away from Canada for less than half the year. Mexico has a national health plan (IMSS), which can cover you if you move there. In 2004, the cost was less than $300 US annually per person, says Pape. To find out if you qualify, you must apply at an IMSS office. Everything is in Spanish so take someone who speaks the language.
Several private companies provide health insurance specifically designed for expatriates. However, most have age restrictions or place limits on pre-existing medical conditions. Further, many insurers reserve the right to repatriate you to your home country if you have a major ailment. This can be a problem because of the waiting period for reinstatement of provincial benefits.
Some plans don’t require repatriation if there’s a major ailment, offer limited coverage for pre-existing conditions and are available for those over 75. “However, costs can be high – $10,000 US a year for each covered person is not unusual at the higher end of the age scale,” says Retirement Abroad: Seeing the Sunsets, a government publication. However, with what you save on taxes and daily living costs in Mexico, it may still be worthwhile.
Ellen Roseman is a business columnist for the Toronto Star and financial author. She hosts It’s Your Money on the iChannel network. Reach her at [email protected].