For many Canadians, the idea of settling down in a warmer climate is increasingly attractive. However, before making this decision, there’s much to consider, aside from the esthetics of the new community, not the least of which is financial planning, based on each unique situation as well as lifestyle goals and needs.

Lifestyle – including such essentials as medical care and housing – is at the top of the list of issues for consideration. But investments, and how an income stream and tax situation are structured, will also affect how and where you’ll be living.

Some of the issues are complex, and you need to look at all of them in detail well before setting your plan in motion.

Taxing decisions

When you leave Canada, you are deemed to have disposed of all your assets at fair market value. There are exceptions for property that Canada retains the right to tax at a later date, such as real estate. Most portfolio investments, however, will be subject to the deemed disposition. If you have saved and invested in non-registered assets wisely during your working years, the deemed disposition of your investments could trigger a large capital gains tax liability.

In addition, you’ll need to think about the potential taxes on your estate when you die. Canada has no estate tax, but in the United States, for example, estate taxes can be as high as 45 per cent of the value of the estate. To avoid these onerous liabilities, it’s essential to obtain professional tax advice before leaving the country.

You will also want to obtain advice on the rules of the country to which you are planning to move.

Investment decisions

There is a U.S. Securities and Exchange Commission rule that prohibits persons who are not registered with the U.S. regulator from giving investment advice or selling products to residents of the U.S. Individual states also have securities restrictions. As a result, you could lose control over your Canadian-based investments. There is a federal exception for registered plans, but this exemption does not apply in all states.

Income decisions

While some pension and registered investment plans are not subject to a deemed disposition upon leaving Canada, there is a question as to how those investments should be treated when you’re planning to retire elsewhere. It may be possible to structure your cash flow for optimal tax efficiency.

For instance, in the U.S., a portion of RRSP income may not be taxable. As a U.S. resident, you would have to pay a 25 per cent withholding tax to the Canadian government when you withdraw from your RRSP, but that may still be less than you would pay in taxes by making similar withdrawals in Canada. Furthermore, the withholding tax may be reduced to 15 per cent if you have a RRIF and take no more than two times your minimum RRIF payment each year.

If you do not take sufficient steps to sever residential ties with Canada, the Canada Revenue Agency (CRA) may still consider you a Canadian resident, subject to taxation on worldwide income. Be aware, however, that severing residential ties is not as straightforward as it may sound. It may entail giving up your home, cottage or other ties. Be sure to get advice from a tax professional well in advance.

Medical coverage is another concern. Canada’s system of providing basic medical coverage to all citizens is not available in all countries. Given the enormous cost of medical services in the U.S., it’s critical to obtain private health coverage. Depending on your age and health, the premiums on this insurance could be significant.

The best way to ensure that your move outside Canada lives up to your expectations is to plan in advance.

Is it the right decision?

For a kinder climate and lower taxes, leaving Canada holds a certain appeal for many. But, it can be a difficult move psychologically – especially for those leaving family behind.

What many non-residents miss is the sense of community they had in Canada, with family and friends nearby. They never feel truly “at home” in their new country.

Language may be a barrier. In other cases, political instability is – or becomes – a concern.
Changing your mind can be costly both from a financial and emotional perspective. That’s why it’s so important to be sure it’s the right move, before severing Canadian ties.

One of the most effective strategies is to stay for an extended period in your prospective community. Try to stay for a few months at different times of the year, to get a sense of the environment in all seasons. This will also give opportunity to begin building social ties.

But before doing so, it’s wise to speak with a tax professional. Certain time limits for your departure may apply, which could have tax implications.

Melanie Hall-Szyszkiewicz is the division director with the Investors Group of Kelowna, B.C.