Every year, many canadians move to take a new job – sometimes because it pays more or has better promotion prospects, sometimes as a transfer to a new position with the same employer. And sometimes people move because they want to live in the new location for lifestyle reasons or to be nearer to family.
You can help your clients weigh the financial and emotional costs, both to see if the move is likely to pay off and to help ensure no important issues, such as taxes, are overlooked.
Some cases are no-brainers. For example, Ryan Shoemaker, an advisor with Investors Group Inc. in Toronto, had a 30-year-old client who moved to the Waterloo, Ont. area from Toronto to take a job that paid a good deal more than his job in Toronto. With the cost of living 30%-40% less in Waterloo than in Toronto, the client was left with $2,000 more a month in after-tax income, allowing him and his partner to buy a 2,000-square-foot home, which would accommodate the children they planned to have in the next five years, for the same $550,000 that their downtown Toronto condo was worth.
Relocations can involve reductions in lifestyle – initially, at least. Another Shoemaker client couple moved to a Toronto suburb from Alberta in order to be near their extended family. The husband’s new job paid 20% more and provided a much more generous pension. However, even with the higher pay, the family had to take a cut in lifestyle expenses because they ended up with 5%-10% less disposable income. A major reason was that they had to pay $700,000 for a new home equivalent to their previous one, which had been worth only $350,000. But, although the couple’s current lifestyle is more restricted, their quality of life is much better. The husband no longer has a one-hour commute each way to work, giving him more time with the family.
Helping your clients decide whether to make a move and then helping them through it isn’t easy because there’s much to consider. A relocation consultant can be an excellent source of help. Many large real estate agencies employ such specialists, whose services your clients would have to pay for. Some employers provide the service of a relocation consultant.
Cathie Hurlburt, senior financial planner with Assante Financial Management Ltd. in Vancouver, tells of her sister’s move. On a preliminary visit, the relocation consultant, who had done some preliminary work, met Hurlburt’s sister and her spouse at the airport and took them to see neighbourhoods that had schools that were suitable for their children and facilities that matched the children’s recreational interests. The couple also were introduced to some people who lived in these areas.
If your client is considering a move, advisors and consultants recommend you and your client consider the following questions:
1. Is your client’s spouse happy about the move? What are his or her job prospects in the new location? A move in which only one partner in a couple is happy can be disastrous.
2. What is the cost of housing in the new location? Consider whether this is a good time to buy there. If it’s not, what would renting cost? Also, consider whether this is a good time to sell the existing home. If not, what rent could your client get for that house? In calculating these amounts, be sure to include real estate commissions, advertising costs, legal fees, any other applicable taxes or fees, and property transfer fees, which are not the same in all provinces.
3. What is the cost of maintaining the new house? Property taxes and insurance, heating and utilities fees vary across the country as well as outside Canada.
4. If there’s a family involved, can the move be done right away or does your client want the children to finish their school year in the old location? If the latter, your client will have to consider the cost of maintaining two residences and travelling back and forth for that period.
Barb Garbens, president of B L Garbens & Associates Inc. in Toronto, notes that employees undertaking a work-related move can, under certain conditions, designate their current principal residence to remain as such for four years after a move – even though they may decide to rent the former property or never to return to it. An accountant can help with this.
5. What are the schools like in the new location? If the schools aren’t satisfactory to your client, the decision will need to be made regarding whether to stay where the family is or pay for a good private school, assuming one is available, in the new location. The latter can be a huge cost.
6. What will the move itself cost? Consider not only the cost of the physical move of both your client and his or her family, but also advance trips to find a new home, temporary accommodation and food costs near either the new or the old residence, and storage costs if needed.
7. What portion of these expenses are tax-deductible?
“The first thing I do when clients are moving,” Hurlburt says, “is give them Canada Revenue Agency’s moving expenses deduction form, T1-M.”
Having this form helps your client remember to save receipts, which might otherwise get lost. Moving expenses are deductible only if the new home is more than 40 kilometres closer to your client’s workplace than the old home.
If you have retired clients who are moving and they take a part-time job in the new location, Hurlburt says, they may be able to write off their moving expenses.
8. What’s the cost of living in the new location? Cost of living includes not only house-related expenses but everything from groceries to public transit, gasoline, auto insurance rates, cultural and recreational activity costs, and sales taxes, which can vary from 5%-15%.
Statistics Canada produces consumer price indices for each of the provinces, territories and major cities. These are based on periodic surveys of the percentage of income spent on each item on a basket of goods in each locale.
Consulting people or a financial advisor colleague in the new location can give you a good feel for the costs. Shoemaker says his office can estimate costs in various parts of Ontario. Other advisors can probably do the same for their locations.
9. What are the out-of-province tax issues? If your client is moving to another province, find out the income-tax rate and what credits and deductions are – and aren’t – available in that province. Are there other taxes? British Columbia, for example, charges a premium for its health care.
There may be tax implications for your client if money has been earned at both the new and old locations in a calendar year. Your client will be taxed for the entire year’s income in the province in which he or she is living at yearend. This can affect decisions regarding the moving date.
10. Will the move affect the estate plan? If the move is to a different province, new wills, powers of attorney and, if applicable, a cohabitation agreement are likely to be needed.
© 2012 Investment Executive. All rights reserved.