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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. 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. 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: i) Do you sell
or rent your house?
Many of these questions centre around one issue - residency for income tax purposes. Will you still be a resident of Canada? 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. 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. 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. What are the criteria for tax residency? 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. 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. Keep those RRSPs invested 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. 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. 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. 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. Global opportunities 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. If you’re a non-resident, you may benefit from substantial tax saving opportunities by moving to a lower tax jurisdiction or by holding your investments in such a jurisdiction. For example, if you become a non-resident and move to a country that does not tax you on your worldwide income (perhaps, for example, the UK), you can hold your investments in a no-tax jurisdiction (such as in the Channel Islands or the Caribbean) and enjoy tax-free investment income (although you should seek tax advice in this regard). Care for your health to protect your wealth 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. 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. 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. 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. 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. Talk to an advisor 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? What should you look for in a firm when you want help and advice on your move abroad? 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. Conclusion 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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