ON BEING A SNOWBIRD
What to consider before buying real estate abroad
If you can’t stand the thought of another brutally cold Canadian winter, it might be time to become a snowbird. But whether you rent or buy real estate, becoming a snowbird isn’t as simple as going on an extended vacation. You’ll have to consider taxes, insurance and all the responsibilities that come with two households — in two countries.
If you’re considering the snowbird lifestyle, rent first. “Find a community that you like and rent for a period of time to see whether or not it’s suitable for you and your partner,” says Chris Bradbury, spokesperson for the Canadian Snowbird Association.
If you’re heading to the U.S., keep in mind the 183-day rule: If you spend more than 182 days in the U.S. over a 365-day period, or more than 120 days per year over three years, you could be declared a resident alien and be subject to U.S. tax — or temporarily banned as an illegal alien.
You can avoid this, says Bradbury, by completing the IRS Form 8840, which declares you as a Canadian citizen and exempts you from U.S. tax (it’s available on the IRS website or through the Canadian Snowbird Association).
If you buy property in the U.S., however, and decide to rent it out while you’re back in Canada, you’ll be subject to U.S. tax. (The other alternative is to board it up while you’re away, just like you would a cottage in Muskoka). And if you pass away, your heirs could be left with a hefty estate tax bill on that vacation home or ski chalet, so talk to a lawyer about options available through the Canada-U.S. tax treaty.
If you’re planning to buy property in another country, such as Costa Rica or Panama, or perhaps a villa in the south of France, do your research and consult a lawyer to make sure you don’t end up paying double the tax.
Your insurance needs will also be quite different from a one-week holiday. You’ll need extended medical coverage — especially if you’re wintering in the U.S., where an emergency hospital visit could eat up your retirement savings.
Provincial health plans aren’t designed to cover emergency health care abroad, so you’ll need supplemental coverage. “If you’re going to be a snowbird, buy a single-trip policy,” says Bradbury. “Annual plans are usually multi-trip for frequent travellers.”
Make sure conditions are being met on your home insurance policy in Canada, which could require a trusted person to check on your home two to three times per week in your absence. Your Canadian policy won’t cover your home abroad; you’ll have to purchase insurance for that in the country of origin. And if you plan to take your car out of the country, contact your insurance company and make sure you have out-of-country coverage.
Bradbury recommends putting together a “snowbird border crossing kit,” which includes a copy of an electricity or phone bill to show you’re still connected to a residence in Canada, as well as a copy of your medical insurance and IRS Form 8840. That way, “you can prove that you have a close connection to Canada and that you’re going to return to Canada,” he says.