Northern exposure

A COUPLE MOVING TO ONTARIO FROM ALASKA MUST FIRST NAVIGATE SOME TRICKY FINANCIAL AND TAX CONSIDERATIONS

Marc and Isabel Wild* are planning to move next year to Ontario from Alaska. At their respective ages of 58 and 60, they will be repositioning for both retirement and better access to their three children and other family, who are spread out from the western United States to Ontario to the Swiss Alps. The physical move won’t be complicated, but making the necessary financial decisions and changing tax regimes will. Isabel, a Canadian living as a permanent resident of the U.S., moved to Alaska after meeting Marc when both were working on aid missions in Asia. Now a dual U.S. and Canadian citizen, she works for a medical research facility in Alaska and can settle in Ontario without any hassles. Marc, who only has U.S. citizenship at present and is awaiting Canadian immigration documents, runs a carpentry business in Alaska. He should get his Canadian landed immigrant status in 2015.

The move will be costly. Their combined present income in Alaska, about $198,000, will shrink, but they will have about $1.05 million in net worth. That includes $659,000 in financial assets and $395,000 equity in two apartment units in Alaska and Canada, $385,000 of it in Alaska. They plan to live in one unit of a triplex they bought in Ontario and rent out the other two. “Our family is on two continents, our properties are in two countries and we have to simplify all this if we are to have a secure retirement,” Isabel says. “That is the goal.”

Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., says the Wilds can have nearly six figures of retirement income, but their transition needs to be simplified. “The problems in this case are not the concept of retiring and collecting pensions, but managing distant properties, complying with two very different tax systems, and keeping bureaucratic hassles to a minimum.”

The move to Ontario from Alaska is financially complex, for they cannot shed their American tax liabilities. Both U.S. citizens, Marc and Isabel will have to report their global income to the U.S. Internal Revenue Service, file Canadian tax returns, then take Canadian federal and provincial foreign tax credits for tax paid to the U.S. on income. On the U.S. side, there is a tax credit for Canadian taxes paid. But given that Canadian tax rates are higher than U.S. rates, U.S. taxes paid will probably be wiped out by Canadian foreign tax credits, says Allan Madan, a chartered accountant in Toronto who has extensive experience with cross-border tax issues.

Their $659,000 in financial assets, which is virtually all non-registered, can easily generate about $20,000 at 3% over the rate of inflation. Their Alaskan property income, converted to cash in Canadian dollars, can generate $4,500 a year. The Ontario property can produce $10,000 a year in net rents after mortgage costs, taxes and maintenance. Isabel will have a $26,239 defined benefit pension from the Government of Ontario for work she did as a civil servant before moving to Alaska. She can also receive Canada Pension Plan benefits of $10,392 a year at 65 and $6,704 a year from Old Age Security — she lived long enough in Canada to qualify for full benefits. Marc will get about