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| Protecting
Your Wealth When You Move Abroad |
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| You’ve packed
the suitcases, loaded the furniture into the van and handed over your keys
to the real estate company. Your employer made you an offer you couldn’t
refuse and so you’re moving to a new country. Just think, for the
next few years you will be able to experience a fresh way of living and
enjoy an exposure to a completely different culture. |
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| But wait
a minute. Don’t fall into the trap that many soon-to-be-expatriates
fall into. Think about your finances. You would be surprised
how many people move out of the country without putting sufficient time
into planning a successful financial move abroad. |
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| Some careful
planning will ensure that your wealth is protected and will enable you
to maximize some of the investment opportunities available to you while
you are overseas. There are a number of issues that you should consider: |
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i)
Do you sell or rent your house?
ii) Do you
maintain your bank account or credit cards in Canada?
iii) What
do you do with your RRSPs while you’re away? |
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| Many
of these questions centre around one issue - residency for income tax purposes. |
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| Will
you still be a resident of Canada? |
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| Your resident
status will have the greatest impact on your finances when you’re living
abroad. Why? Because Canadian residents, whether living in
Canada or abroad, will be taxed on their worldwide income. You may
also be subject to tax in the country to which you move. As a non-resident,
your worldwide income is not subject to Canadian income tax, but may be
subject to the taxes of the country in which you’ve taken up resident status. |
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| How could
this affect you? If you work in a country with a low personal tax
rate, such as the Middle East, and are still a Canadian resident, you will
pay a lower rate of tax, but must also file a Canadian tax return which
will, in effect, bump up the total tax bill. |
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| A non-resident,
on the other hand, will only pay tax at the rate set by the country in
which he or she is living and working. You should explore the best
option for you and your family with your advisors in both Canada and the
country to which you are moving. |
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| What are
the criteria for tax residency? |
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| Generally,
if you’re absent from Canada for two years or longer and give up key links
to the country (for example home, cottage, bank account, credit cards,
club memberships, etc.), you will likely be presumed a non-resident.
There is, however, no laundry list of dos and don’ts. |
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| As an example,
if your spouse and dependents remain in Canada, Revenue Canada may consider
you to be a resident of Canada during your absence. Resident status
is determined on a case-by-case basis. Be careful of your length
of stay in Canada when you return for a vacation or a business trip.
Prolonged stays in Canada following your move abroad could affect your
resident status. It is never safe to assume that you have non-resident
status and are no longer subject to Canadian tax on your worldwide income.
Consult with your tax advisor to determine your resident status based on
your personal circumstances. |
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| Keep those
RRSPs invested |
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| Many Canadians
think - wrongly - that if they move abroad they must cash in their RRSPs.
Whether you’re a resident or a non-resident for Canadian tax purposes,
you can keep your RRSPs in Canada. Your fund is completely sheltered
from Canadian tax for as long as you hold it, whether you are living in
Canada or abroad. |
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| If you cash
in your RRSPs while you are a non-resident of Canada, though, you will
immediately pay 25% of the whole fund in Canadian non-resident tax (subject
to limited exceptions provided under some tax treaties). That amount
is a hefty chunk to lose from your retirement pot. |
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| There may
also be tax to pay in your new country of residence. If you are considering
cashing in your RRSPs, it might be better to wait until you have become
a non-resident, depending on the tax implications in your new country of
residence. Whatever you decide to do, it is always important to discuss
your financial planning options with your advisor prior to making a decision. |
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| If you maintain
your Canadian tax residency, you may be able to continue to contribute
to your RRSP, since your RRSP deduction limit will be based on your worldwide
earned income. Non-residents generally cannot continue to contribute,
unless they continue to have taxable earnings in Canada which would entitle
them to an RRSP deduction limit. |
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| Global
opportunities |
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| Living abroad
provides the chance to examine new investment opportunities. Over time,
access to world markets through a well-diversified portfolio generally
results in enhanced returns, with less risk and volatility than equity
investments in a single market. |
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| Care for
your health to protect your wealth |
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| Be sure to
take the time to plan for the future of you and your family in the event
that you should fall ill. Health care in some parts of the world
can be very expensive. |
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| The rules
for health care coverage differ by province, but if you’re away from Canada
for a considerable length of time (several months or more), you’ll need
to check whether your health coverage continues to apply. Chances
are you’ll need to find additional coverage through your employer or from
a private insurer. |
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| Don’t leave
it to chance. An uninsured stay in hospital in a country with no
state health care, such as the UK, could jeopardize your financial well-being. |
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| Also, check
your other insurance policies (life, disability, dental, property).
Ask about the restrictions on coverage while living or working out of the
country. You may need to change or replace existing policies to guarantee
coverage. |
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| Finally, consult
with an estate planning professional about your will. You may need
to revise your will or draw up a new one, depending on the country you’re
moving to. While the risk of death abroad may seem remote, the impact
of an invalid will could be devastating to your family and beneficiaries.
It’s well worth checking into. |
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| Talk to
an advisor |
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| There are
a number of financial management options when moving abroad. Could
you benefit from an international trust or international company?
Can you have your salary paid into an offshore bank account without incurring
any liability for income tax in the country in which you are working? |
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| What should
you look for in a firm when you want help and advice on your move abroad? |
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| You’ll want
to deal with an advisor from an established company with expertise in both
Canadian and international law, especially tax law. Be sure that
the company is familiar with the needs of expatriates, has a long, solid
performance record, a strong global network of offices staffed by specialists
and a commitment to preserving your capital. |
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| Conclusion |
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| Make the most
of your time abroad. Take the time to look at the financial implications
of your move before you leave Canada - it could be the best move you ever
make. OFC |
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