Retiring abroad? Some pointers

Every winter, thousands of Canadians leave the cold weather behind and head for warmer climes in the southern United States. Some make this an annual trip, spending a few well deserved months in a condo in Florida or a trailer park in Arizona. Others, however, book a one-way flight and set up a permanent home in their own personal paradise.

Surprisingly, you don’t have to be wealthy to live outside Canada, unless you choose a major urban centre. Even those retiring on fixed incomes can find the perfect location. After some thorough research, you may be pleasantly surprised to find a retirement haven abroad that’s not only affordable, but also downright beautiful. Of course, if you’re “independently wealthy” money won’t be an object, but who doesn’t like to save a few dollars?

Issues to consider
There are, however, many implications when moving to another country full-time and becoming an official non-resident of Canada. Permanently severing ties with Canada can be a difficult decision. You have to consider issues such as:

· Tax
· Estate planning
· Financial planning
∓183; Pensions
· Housing
· Health costs 
· Cost of living.
You also need to look at issues such as:
· Citizenship
· Culture
· Society
· Government 
· Language 

There could also be considerable emotional, psychological and social adjustment considerations if you’re leaving family, relatives and friends behind.

The most popular destination for permanent retirement is the U.S. The popularity of other destinations depends on the motivation. For example, if you are concerned about the tax advantages elsewhere, you might be attracted to a country which is a tax haven or has low taxes.

Many small countries in Europe or in the Caribbean fall into this category. They want to attract people with money to invest. Possibly you have family ties to the country where you were born or have an extensive network of relatives. Maybe climate or recreational opportunities is a consideration, depending on you health and lifestyle.
Here are some key areas to investigate when deciding to live elsewhere.

One reason for relinquishing your Canadian citizenship could be because your newly adopted country requires you to be a citizen to live full-time and/or own property and does not permit dual citizenship.

Alternatively, you may no longer have ties to Canada, and see no practical benefit in retaining your citizenship. Or, as countries tend to tax based on residency, there might be certain tax or pension benefits to relinquishing your Canadian citizenship.

Canadian law permits a Canadian to have more than one nationality. The Canadian government encourages Canadians to use their Canadian passport when travelling abroad and to always present themselves as Canadian to foreign authorities. Canadian officials abroad will offer consular assistance to Canadian citizens wherever they can. However, local authorities may not assist Canadians who have not specified their Canadian citizenship when entering the country.

You cannot terminate your Canadian citizenship or residency simply by living in another country. Moreover, becoming a legal resident of another country does not establish non-residence in Canada for tax purposes. You must demonstrate your intention to leave the country permanently.

The CCRA (Canada Customs and Revenue Agency) determines non-resident status on a case-by-case basis, so you should consult a tax advisor about the necessary steps you should take. Retaining Canadian residency does not necessarily put you at a disadvantage.

Depending on your situation, your actual tax liability could be lower than the nonresident withholding taxes imposed on your Canadian pensions and investment income. For example, if you have a modest income and would not have to pay much tax under Canadian tax laws, you could be further ahead than if you relinquished your residency. There is a flat rate withholding tax for non-residents, which could be more than your taxes.

In general, absence from Canada for two years or longer is considered evidence of non-residence provided that you relinquish or terminate other key connections. These include:

· Residences
· Bank accounts
· Credit cards
· Driver’s licenses
· Health-plan memberships
· Club or professional memberships.

Taxpayers who emigrate from Canada are generally deemed to have disposed of their assets at fair market value on the date they leave. Capital gains taxes, if any, are assessed at this time. Assets affected by this provision include shares in Canadian corporations, but not real estate. Deemed disposition is triggered by your declaration that you have left the country, which you make on your final income tax return, filed by April 30 of the year following your departure.

Canada imposes a withholding tax on “passive” income paid to non-residents from Canadian sources, including annuity payments, pension plans, CPP, and OAS. More information on taxation of non-residents is available from the CCRA here. You are eligible for OAS payments for your lifetime, as long as you were resident in Canada for at least 20 years before you leave Canada.

You are eligible to CPP payments for your lifetime as well, without a minimum residency requirement. The amount varies depending on the type of income, but it is 25 percent for pension payments. This tax may be reduced or waived according to the terms of tax treaties between Canada and other countries.

Health Care
Health care is a serious issue for Canadian expatriates because few countries have systems that are as comprehensive or as inexpensive for the user as Canada’s Medicare. Some developed countries have comprehensive health care plans that will cover you, after a waiting period, if you immigrate.

But the countries that are the major destinations for Canadian retirees generally do not offer comparable programs. Many developing countries provide free universal medical care to citizens and permanent residents. Mexico, for example, has a national health care program. But most Canadians living in these countries seek private medical care, which many consider to be of a higher quality and which involves shorter waiting periods.

Private health care facilities are fairly advanced in most countries, and a private hospital or clinic will usually see you immediately, for a fee approaching the cost of similar services in the United States. Faced with these trade-offs, most Canadians choose the private alternative and make sure they are well covered by insurance.

So, when you decide to leave Canada for good, there are many complicated issues to consider. Your best bet is to seek professional tax and legal advice in advance of any decision to ensure that you fully understand the implications.

Douglas Gray, LL.B., is a Vancouver-based expert on retirement planning issues. He is the President of the Canadian Retirement Planning Institute Inc. and author of numerous best-selling books, including the recently released, The Canadian Snowbird Guide, 3rd edition and The Canadian Guide to Will and Estate Planning, both published by McGraw-Hill Ryerson.