Retiring Abroad? TAX ISSUES You Need To Know

my name is Adam welcome to the channel thank you for joining us today today we have a special guest uh Chris Dyke Chris is a CPA at avasar CPA here in Langley BC uh they're an accounting firm and we brought Chris in today to talk about emigrating from Canada which is a big topic that you guys ask about so we thought we'd bring in uh an expert to talk about the field and just what it's about and what you guys need to know like this is a high level view of what it takes or what it means to emigrate from Canada the things you need to do and really the the kind of the tax side of things that we want to talk about today the point we're trying to make today is there's more to it than you probably know so make sure you reach out to your tax professional and if you have any questions uh comments leave them Below in the comment section and Chris and I will do our best to answer those so Chris first question I have for you is what is becoming a non-resident to become a non-resident uh tax hack basically says that you're you're severing your ties to Canada and there are three major ones that uh apply there one is you've sold your home two is your family your spouse and your kids have moved with you and three is you've basically severed your social Ties You've Made new friendships you've really moved on with your life in that new country and in certain cases where perhaps you might have a time where you have a house both in your new country and in Canada still maybe you haven't sold the housing Canada then it goes on to secondary ties such as where is your medical coverage where is your driver's license and other things like that okay that makes sense okay Chris this may be an obvious question but should you notify anyone if you're leaving Canada is there anyone to notify that you're actually leaving yeah for sure and the the obvious one is obviously Canada Revenue Agency you should let them know that you have become non-resident also Service Canada so Service Canada is the organization in charge of OAS and CPP payments if you're a retiree Canada Revenue agent see you would control things like Canada Child Benefits or GST credits If you're receiving those and then finally any financial institutions where you might receive income from your Investments they have to know as well so that they can start to withhold tax and we'll talk about that a little bit later yeah perfect yeah you think all these organizations would talk to each other but they don't they like you think Canada even Canada Revenue Agency and Service Canada yeah two different organizations yeah it's great like you think it'd just be like one email or one phone call and it's all done but it again there's more to it than most people realize and and you got to make sure you kind of check all those boxes or you could run into a pretty nasty tax situation which we'll talk about here so the next question I have for you Chris does your tax return change and is there anything you should do before you leave Canada well before leaving Canada other than notifying the people we talked about you probably want to sell your home if you can when you are in Canada if you're resident of Canada and it has been your principal residence we'll assume you just have the one home when you sell that principal residence it's tax free however if you keep the home and sell it sometime when you're a non-resident you may be taxable on that portion for a portion of time when you're not a resident of Canada so it's proportion of when you were gone correct now is there there's a form or something that you can file yeah it's called a t2062 and basically if you are a non-resident you're selling property whether it was your principal residence or not you have to report that within 10 days of the sale so really soon really you've got to be on top of it you really have to have that form kind of ready to go yeah okay so in the year that you leave Canada you'll have a tax return that's from January 1st up until the date that you become a non-resident and at that point on that final return it's it's actually similar to if you die well in Canada you are deemed to have sold everything that you own for their fair value so if you have Investments That might have gone up in value if you have a rental property if you have shares of a company all of those are deemed to be sold for whatever their fair value is at the time and if you have a gain that you need to report and so it can be a very expensive proposition in leaving Canada there are options if you have a significant amount of tax that you can basically post Security in other words not pay the tax initially but leave behind something of value that the government can take if you fail to pay that tax and even like if you have artwork or jewelry that kind of stuff like all these things there could be a demon disposition on and people don't realize that like we had someone a couple years ago that left Canada realized all this afterwards and you know it's a six figure check they had to write they had no idea well they came back later that said well we probably would have changed our mind it was an expensive departure that we did didn't realize and again this is why we're doing a video like this to hopefully help people to avoid that situation yeah I mean the more assets and the more complicated your tax situation is the more you need advice and the more you need to just ask even to know that you're okay yeah exactly yeah no good point so the next question for Chris and this I think is the most important question that or the most popular question that you guys ask us is How is income treated after you are a non-resident so when you leave Canada and you have income both abroad and maybe in Canada here CPP OAS and again we've done a video we'll link it above here on what happens to your CPP and OAS when you leave Canada we have a full video on that so click on that if you don't know what that means for you but yeah what happens to to income when you leave Canada so like we talked about before so a big part of leaving Canada is notifying the various payers of your income so that they can withhold an appropriate rate of tax so that withholding tax starts at 25 and depending on if the country that you're moving 2 has a tax treaty with Canada it could be reduced to as low as five percent often fifteen percent on a lot of the income and then what happens is because you're a non-resident you don't have to file a tax return in Canada that withholding tax is your Canadian tax okay but then in the new country if you file a tax return there you would be able to claim a foreign tax credit that reduces the amount of tax that you have to pay the new country So It ultimately results in you having to pay the higher of the two tax rates on a combined basis okay so if you have 15 withholding in Canada and your tax paid in the other country is 20 you would get a full tax credit in that other country and in the paying the other five percent difference okay so then let's flip that example let's say a client or someone moves down to Mexico and the withholding tax here is let's say 25 sure and the total dollar value of withholding taxes fifteen thousand dollars on their riff and CPP and OAS they're down in Mexico they're non-resident of Canada and they follow their Mexican tax return and they add up all their income and the taxes in Mexico work out to be ten thousand dollars so they paid or withheld fifteen thousand in Canada but their taxes due in Mexico are only 10. so they're going to get the credit so they're not going to owe any more tax but they've actually had more tax withheld and paid then maybe they should have otherwise and that's I've said this before in the channel sometimes leaving Canada for tax purposes works against you true and we've seen it quite often we've done Financial plans for clients in Mexico and the end result has been you actually are paying more tax by living in Mexico than if you were here in Canada now obviously your house and everything else is much cheaper in Mexico than here in Canada but leaving Canada doesn't mean you pay less tax you end up paying where there are two two countries with the tax treaty you end up on a combined basis paying the higher of the two taxes yeah so in the case that you talked about uh if the individual owed ten thousand dollars in Mexican tax otherwise and had had on the Canadian income and it had 15 withheld they'll not pay any tax in Mexico but they don't get back the other 500 000 in Canadian tax yeah no that's a good point and that's a good point so if you're looking to leave Canada to immigrate from Canada look at what the tax treaties are look at what your income is and work out just grab an Excel spreadsheet and work out those tax numbers to see will you be paying more by leaving Canada and if you are does the lower cost of living outweigh the added tax costs because it may not okay so Chris the next question uh what about rrsp is another tax deferred Investments what do clients need to do with those yeah so I'll use the moving to the us as an example it's the one that's most common for the clients we deal with and basically the rrsps can retain remain in Canada they are Contin continually tax deferred so in Canada you don't pay any tax on it in the case of the United States they also recognize it because they have a similar type of scheme they also recognize it as tax deferred as well okay so it's only when you draw the money out that you are taxed in Canada on a withholding basis and then have to report that same income in the United States other types of you know tax savings Vehicles such as a tax-free savings account tfsa or an resp for your kids those are not recognized in the same way in the United States and other countries so although they may be tax deferred in Canada you might have to report that income earned on those accounts in the United States or other country so we generally advise people because it is tax free to collapse tax-free savings account to do that before you leave and the same with the the resp it's it's very punitive in the United States so it's best to just collapse any plan if you have an resp think about there you may come back to Canada at some point and then I says because my my brother did this so he's down in the US right now they may come back probably not but they may and they had an resp so they changed the the owner of the account to my mom right so you can just resonated someone that's resident Canada you can do that but going back to the tfsa it is very important to know that if you move to the states and you continue to hold your tfsa to the tax-free in Canada yeah the US does not realize just like if you're a U.S or dual citizen in Canada you can't have a tfsa account because yes it's taxed for here but the US taxes you on that income right and I find it funny because the US has the Roth IRA which works very similar very similar like it's different but it's just a different shade of the same thing yeah so hopefully one day they recognize the tfsa but at this point while we're recording this video in 2020 I do if you're leaving Canada especially to the states you're going to have to liquidate that tfsa it makes the most sense from a tax perspective um so outside of your registered or investment accounts is there anything else when you leave Canada that you need to change so credits benefits that kind of stuff right so two types of things that some people might receive are GST credits and Canada child benefit depending on their family income once you become a non-resident those stop so that's part of contacting CRA when you leave Canada as well as if you happen to have a home buyers plan or a lifelong learning plan where you withdrawing from your rrsp for those items those are repayable and there's terms but on how long you have to repay them okay so it works a little bit different so be aware of that we had a client the other day that applied for home buyer plan and they still had open buyer plan so nothing to do with this video but you need to know the the outline and the rules around these accounts and especially when you're leaving the country so Chris you touch on this briefly already but if you leave Canada become a non-resident you have to file Canadian tax returns anymore most cases know but there are a few instances for example if you're a border resident and you still work in Canada so you have employment income or maybe you have a business in Canada basically Canadian sourced income we still have to report on a Canadian tax return as well if you perhaps leave a rental property your home becomes a rental property behind you do have to report that rental income and and they're very there's specific rules on how much you need to withhold and remit to the government on the rental income a couple of options there okay a little bit beyond the scope of our our talk yeah so make sure you have a good cross-border tax account and if that's the situation that you fall into then right yeah so Chris thank you for joining us today that's what we have for immigrating from Canada again if you're looking to emigrate from Canada I highly recommend reach out to your tax professional or find a tax professional in your area that that understands leaving the country now you might have a tough time you're going to let's say Columbia you know a Canadian Colombian tax border a cross-border tax professional but talk to a tax professional here in Canada talk to one in Columbia and start gathering information again there's steps you have to take before you leave Canada so make sure you know that so Chris thanks again for joining us today just a reminder to our viewers we do still have the Black Friday sale on our master class so you check that out we'll put the link below and the financial plan giveaway we are giving away two Financial plans the draw will be in a few weeks here on December 16th so make sure you enter for that again you're not entering yourself you're entering someone that you want to win the plan so it could be a Frank co-worker family member someone that needs help needs a retirement plan but maybe can't afford it so thank you for joining us in this video thank you Chris for joining us absolutely we'll see in the next one

Channel: Parallel Wealth

Views: 63,437

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, Savings, TFSA, Wealth, Parallel Wealth, rrsp, retiring abroad, emigrating from canada, how to emigrate from canada

Id: lVqLeNf-sfk

Length: 13min 41sec (821 seconds)

Published: Fri Dec 02 2022