Your guide to the risks and the rules of retiring outside Canada
RETIRING OUTSIDE CANADA CAN OFFER GOOD VALUE FOR CANADIAN FAMILIES, BUT IT’S IMPORTANT TO KNOW THE RULES AND RISKS FIRST
Surrounded by palm trees, a four-storey, 2,200-square-foot home sits on an artificial island in tropical Belize. The house features a private pool, a top-floor deck with ocean views and a boat parked in the garage.
The home, under construction, belongs to Calgarians Allen and Kathryn Kessler, and it’s where they plan to retire in the next few years. The cost to carve out their own piece of paradise: $700,000 — about $100,000 more than they’d pay for the 1966, 1,100-square-foot Calgary home they’re currently renting.
The lower cost of living was a leading factor in the Kesslers’ decision to retire to Belize. The sunny, tropical climate was the key motivator.
“We wanted some place where we could get away from snow,” says Allen, 50, a management consultant. “It’s tropical, it’s relaxed, we can go fishing if we want, we can hang at our private beach . . . They speak English . . . It pretty much became a no-brainer.”
Eighty-five per cent of Canadians over the age of 45 say they plan to stay in Canada when they stop working, according to a BMO Retirement Institute report from 2011. This statistic doesn’t include the thousands of Canadian snowbirds who trek south for part of the year.
Retiring to a balmy southern climate may sound like a dream come true, but it requires careful tax, estate and cash management planning, says Michael Wood, regional vice-president at RBC Wealth Management. He advises sitting down with a financial planner and seeking the advice of tax and estate consultants before making any decisions.
“Every country has its own tax laws and immigration rules,” says Wood. “You may be required to file taxes both in Canada and in a foreign country.”
In countries that don’t have a tax treaty with Canada, Canadians may be subject to double taxation on income.
The tax structures are a little different in developing countries, adds Wood.
The Kesslers are building this retirement home, which includes a private pool. In most cases, developing countries don’t have the resources to collect taxes on foreign-source income, so they rely on high consumption taxes or import duties.
A benefit that drew the Kesslers to Belize was the country’s Qualified Retired Persons program. Through the program, the Belize government gives qualified retirees an exemption from taxes on all income earned outside Belize. Qualified retirees are also exempt from paying import duties on personal goods up to a value of $15,000. Retirees must be at least 45 years old, spend one month or more of the year in Belize, and show that they have a monthly income of at least $2,000 from outside Belize.
A permanent move abroad (which doesn’t apply to snowbirds) comes with tax implications within Canada. All nonregistered Canadian assets are deemed “sold” at fair market value at the time of departure and capital gains taxes are due. Any passive income from Canadian sources (interest, dividends, rental income, registered retirement savings plan income, registered retirement income fund in- come and pension income) is then subject to a 25 per cent withholding tax.
Canadians living abroad are still eligible to receive their Canada Pension Plan benefits, as long as they continue to meet eligibility conditions. Old Age Security benefits are paid to pensioners outside Canada if they lived in Canada for at least 20 years after age 18.
Estate taxes are another important consideration for those owning property in a foreign country, says Wood. Unlike Canada, many countries levy a tax on estates. In the United States, for instance, the maximum tax rate in 2008 was 45 per cent, according to Foreign Affairs and International Trade Canada.
“You need to sit down with a consultant well in advance because there are ways to structure assets, particularly in the U.S., to minimize the impact of estate taxes,” says Wood.
While most Canadians retiring abroad choose the southern United States (particularly Florida and Arizona), many Canadians are making the trek to other sunny destinations, including Mexico, the Caribbean islands, Central America, South America, Asia and Europe. A lower cost of living is often a key draw.
“For a lot of Canadians, there are some financial benefits to moving to certain areas where it can be cheaper — both from a tax and cost of living perspective,” says Wood. “But there are other considerations. Health care is probably the biggest one.”
There are few countries that offer better health care than Canada, says Wood. “So, you need to understand what are your health-care requirements? Also, (what if) you’re injured or fall ill and you’re in a hospital . . . for an extended period of time? It can cost a lot of money if you’re not fully insured.”
Travel and communication expenses are other important considerations for those retiring abroad.
“What are your expectations to travel back to visit friends and family?” asks Wood. “How do you plan on communicating with them on an ongoing basis? There are costs to all of that, and you need to have that identified in your financial plan.
“Canadians, from a financial planning perspective, underestimate the cost of retirement, particularly if they plan on travelling,” adds Wood. “They’ve got a lot more free time and a lot more time for activities. Typically, activities cost money. So, most people . . . think they need less money than they had pre-retirement. A lot of times, that’s not necessarily the case.”
The Kesslers plan to be semi-retired in three to five years. During that time, they’ll spend just one to two months of the year in Belize. Once they’re fully retired, they plan to spend December through June at their island retreat, returning to Calgary to live with their son during Belize’s rainy season.
Before making any decisions to retire abroad, a person should visit the country they’re considering, says Allen Kessler. “Go there and experience it and travel around and talk to people,” he says. “Have you gone in the off season when the weather’s the worst?”
Language barriers, cultural differences, safety and security, and laws around property ownership are all important considerations, adds Allen Kessler. The ability to make new friends is another factor.
Already the Kesslers have met four other Calgary couples in their Belize community, and they hope more will move into the new housing development. “I want to build a community,” Allen says. “Having a fully functional, self-contained community is important to us.”
For more information about retiring abroad, visit http://www.voyage.gc.ca/ publications/retirement_ retraite-eng.