Canadian retirees who spend significant portions of the year vacationing out of the country may put themselves at risk of losing access to certain government benefits or of facing adverse tax consequences if they stay away too long.
And with governments becoming increasingly vigilant in enforcing rules related to taxes and government benefits based on residency, it’s more important than ever for snowbirds to track the number of days that they live abroad. “If you’re going to leave and [just] take your chances, you do so at your own risk,” says Chris Buttigieg, senior manager of wealth planning strategy with Bank of Montreal in Toronto.
In July, Canada and the U.S. began collecting a broader range of information on individuals crossing the border as part of a new travel information-sharing initiative. The Canadian government has indicated that it will share information regarding how long a citizen has been outside the country with other government departments.
The rules vary by province, but, generally, Canadians must be physically present in their home province for four or more consecutive months in each calendar year to remain eligible for Canadian health benefits. Exceptions to these rules are available for extended overseas trips, particularly for work or study abroad. However, your snowbird clients should check with their provincial health-care provider before they leave.
Clients who remain abroad too long and cut certain residential ties to Canada may no longer be deemed to be resident for tax purposes in Canada and, instead, be considered as tax residents of a foreign country. These clients may find themselves liable for departure taxes in Canada on the deemed disposition of their assets, among other consequences.
In general, however, Canadians still can receive Canada Pension Plan or Quebec Pension Plan benefits while no longer being a tax resident of Canada. Canadians also can continue to receive old-age security benefits as long as they meet certain conditions, including having lived in Canada for at least 20 years after the age of 18. However, guaranteed income supplement and spouse’s allowance benefits would be available for six only months after the month of departure.
Although the Canada Revenue Agency (CRA) looks at each case individually, the trend has been toward tightening the enforcement of rules. “The CRA used to look more closely only at those people who were saying they weren’t residents [thus, not liable for Canadian taxes],” says Tannis Dawson, senior specialist, tax and estate planning, with Investors Group Inc. in Winnipeg. “Now, the CRA is looking at both sides, and making sure that if people are saying they’re still residents of Canada [for the purposes of collecting benefits] that they truly are.”
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