January 5th, 2024
Many Canadians choose to spend time abroad once they retire, whether year-round or for a few of the colder months at a time.
Whether you will be a snowbird or a permanent non-resident of Canada, you will need to consider a few key money matters, including tax laws, your public pension benefits, medical care, and travel and living costs to name a few.
Taxation and distribution of government benefits are based on your residency status, so it is advisable to inform Canada Revenue Agency (CRA) of your intention to travel or live abroad if you plan to be gone more than 3 months.
Most people assume becoming a permanent resident of a foreign country means they can avoid high Canadian taxes. Unfortunately, this is not always the case.
For example, if you spend part of the year in the United States of America but retain residential ties in Canada, for tax purposes you are considered a factual resident, and CRA will calculate taxes on your income as if you never left. This also applies to retirement income or other revenue. As a non-resident of Canada, you may be taxed on income received from sources in Canada by both CRA and the country in which you’re staying.
RRSP withdrawals may also be taxed at a higher rate for non-residents than they are for Canadian residents. So, if you have a significant amount of retirement income that will be coming from RRSPs, becoming a resident in another country may turn out to be more expensive.
Public Pension Benefits
If you’ve lived and worked in Canada, you are eligible for Canada Pension Plan (CPP) benefits and Old Age Security (OAS).
CPP benefits are paid if you live outside Canada, if all conditions of eligibility are met. Because you contributed to this plan through payroll deductions, you will be entitled to the benefit regardless of where you’re living.
OAS is paid outside Canada if you lived in Canada for at least 20 years after age 18. If you don’t meet the eligibility requirements, you may be able to coordinate your pension benefits with CRA and your new country of residence if that country has a social security agreement with Canada.
You can also set up a direct deposit with CRA to have your pension benefits deposited to your bank account in your new country of residence in the local currency.
What if you get sick or injured while outside of Canada? It is crucial that you know how often you need to return to Canada to keep your provincial or territorial coverage and how much of the cost is covered while you are outside of Canada.
For example, in Nova Scotia, if you are planning to travel outside of Cananda for a short period of time, MSI will cover emergency medical services only, so it is advisable to purchase a Travel Health Plan to cover any services that are not eligible to avoid incurring significant cost.
If you will be outside Canada for a longer period, purchase private health insurance – and get the best that you can afford. It will save you dollars and stress should you require medical treatment outside of Canada.
Travel and Living Costs
The idea of getting away for the winter is a dream, but it can also incur significant short-term costs. Will you rent or own property in both Canada and the country in which you are residing? Will you be returning to Canada? How often? You’ll need personal and household items while you’re away. You should also have an emergency fund that you can draw on should you incur medical costs or other unanticipated expenses.
All these expenses and the travel to and from your destination can add up quickly, so you’ll want to have a budget in place to account for these costs.
It is important to advise your Canadian bank and credit card companies about the period you’ll be abroad to avoid any holds on your accounts. While most banking can be done online worldwide now, if you are permanently residing outside of Canada, you will likely need to open a bank account in your country of residence.
As you can see, there are many things to consider, both big and small, if you plan to live or travel abroad after retirement. Your financial advisor can help you prepare and budget for your travel and can help you navigate the tax and pension implications of driving off into the tropical sunset.