• Life Events
  • Parenthood
  • Retiring
  • Death of Spouse
  • Divorce
  • Ailing Parent
  • Leaving a Job

Activities

Now that the children are gone you may be thinking about how this will affect your own activities. With no children participating in school and sports, and the necessity for planning family meals and schedules, this should mean an increase in time available for other things.

Having more time is always a welcome luxury and you (and your spouse) should step back and think about what this could mean in terms of spending more time in other activities. These might be:

• sports (golf, tennis, curling, gyms)
• clubs
• volunteering
• dining out
• travel

Of course, all of the above will require some sort of financial outlay and you will need to incorporate those costs into your 'empty nest' budget. As well, if you have a spouse it is important that you both appreciate the time commitment that one or both of you will have to make.

Travel

Travel is a wonderful way to spend time and it is often at the top of many people's list of things to do when time permits. However, even when the time is available, the issue of cost is always present. Travel plans need to be carefully considered and the cost must be incorporated into the family budget. If you are approaching retirement and have thoughts about becoming a 'Snowbird' you should be aware of the taxation implications of spending an extended period outside of Canada. Although the rules are specific, spending more than six months in the U.S. in a year can have negative taxation implications.

Tax impact of spending time outside Canada

Not surprisingly, there are serious tax consequences relating to residency. For example, the US authorities will apply what is known as the 'Substantial Residence' test. The test says that the number of days that you spend in the US in the current year plus 1/3 of the days you spent in the US last year plus 1/6 of the days you spent in the US two years ago cannot add up to more than 182 days. If you exceed that limit you will be subject to US taxation on your worldwide income. Looked at another way, you can consistently spend 121 days (about four months) in the US annually and not be subject to US tax.

121 days (Yr1) + 40 days (1/3 of Yr2) + 20 days (1/3 of Yr3) = 181 days, just under the limit.

If your primary residential ties are with Canada, paying U.S. tax may be avoided by filing Internal Revenue Service form 8840, The Closer Connection Exception Statement for Aliens. To get more information in detail, please speak with your financial advisor.

To maintain your Canadian residency status the same 182-day rule applies for any other country. However, the tax situation is different in other countries and is affected by whether Canada has a tax treaty with the country. When considering taking up partial residency and/or buying property in a different country you should be speaking to a qualified tax and/or legal advisor.

Health coverage in the U.S.

When contemplating travelling to the U.S., either for a short trip or extended stay, it is very important to understand the type and amount of health insurance coverage required. Your provincial/territorial health plan will cover you for health costs incurred while in the U.S. but only to the extent that you would be covered while in Canada. This can have severe financial consequences since a particular health need may not be covered at all, or the amount of the expense incurred in the U.S. can be dramatically higher than the coverage provided at home. You have to pay the difference. As well, the government coverage typically will not be in place when you are out of Canada for more than 183 days. Consequently, buying private travel health insurance is highly recommended. There are many providers of private health insurance and it will pay off to 'shop around' to find the plan that best suits your budget and requirements. Some of the questions to ask when assessing travel health coverage are:

Does your employer group plan provide coverage?
Does your credit card company provide travel health insurance?
Are there age restrictions on coverage?
Are there exclusions for 'previously existing conditions'?
Is the policy one of indemnity? (meaning the patient pays up-front and is then reimbursed by the insurance company later)
Does the coverage provide transportation back home?
Does the coverage allow for family or friends to travel with the patient?

Following is a list of links that will detail the specific coverage provided by your jurisdiction:

• Alberta
• British Columbia
• Manitoba
• New Brunswick
• Newfoundland and Labrador
• Northwest Territories
• Nova Scotia
• Ontario
• Prince Edward Island
• Quebec
• Saskatchewan
• Yukon

Purchasing real estate in the United States

There should not be any immediate implications of purchasing another property in the United States. However, for estate planning purposes there can be issues. If you die and at the time of your death you own assets in the United States, these will be subject to US tax. The tax may be offset through tax credits but again, this is an area where you should definitely seek professional advice.

Renting Out Real Estate in the United States

If you have purchased a U.S. property it is likely that you will only be there for a few months of the year and may want to rent it out in your absence. This can certainly be done but there are tax consequences. On the U.S side, the renter has the choice of either paying a 30% withholding tax or else filing tax form 1040NR with the IRS. As far as Canadian tax, the rental income earned in the U.S. must be included in income but there are usually offsetting tax credits available. Professional advice should definitely be consulted to determine your tax status.

Selling a Property in the United States

If you sell a U.S. property you will be subject to tax in the U.S. on the gain on the property. Several factors can come into play but generally, if the property has been held for less than 12 months the tax rate will be at the U.S. graduated rates and if held longer than 12 months, at 15%. The gain on the sale of a U.S property must also be reported for Canadian tax purposes and adjusted for foreign exchange. However, this potential double taxation can usually be offset by the foreign tax credit.

Foreign Exchange Issues

When you exchange Canadian dollars for U.S. dollars you will be subject to the 'spot' rate at the time or the rate determined by the foreign exchange markets on a given day. However, 'forward' transactions can be made where you can lock in a specific rate for a specified time period. This can be beneficial in situations where a property is bought or sold but there will not be an actual exchange of cash until some time in the future, perhaps three months. A forward currency contract will ensure that the amount of cash to be paid or received can be guaranteed. Your advisor can help you decide if this is a strategy suitable to your personal circumstances.

Bank Accounts in the United States

Many 'Snowbirds' prefer to have a U.S. bank account and these can certainly be established. A few of the major Canadian banks have established a presence in the U.S. through the purchase of U.S. banking institutions and they will provide a variety of account options for Canadians. It is important to appreciate that U.S. securities regulations will prevent you from opening an investment account. However, U.S. laws have been relaxed to some extent and 'Snowbirds' can now make transactions in their Canadian registered accounts such as RRSPs and RRIFs while in the U.S. You should definitely consult with your Advisor to ensure that your dealings will conform with U.S. law.

Estate Planning and the United States

U.S. tax law will levy tax on death on the fair market value of certain assets held in the U.S. by Canadians. These taxable assets will include real estate, certain personal assets such as vehicles and shares of U.S. corporations among others. Canadian tax law will also tax these assets on death but there are tax credits available that will reduce the chance of double taxation. Professional tax advice should certainly be sought where there are U.S. assets involved. There are also strategies available while you are alive to plan for and reduce the effect of U.S. taxation.

Immunizations when traveling

Your risk of contracting disease depends on where you are traveling. Some countries will require proof of immunization to be allowed to visit. As with visas, you should be contacting the embassy or consulate of the country of interest to find out what immunizations are required. There may also be the risk of diseases for which immunization documentation is not required but it is still prudent to get the immunization. The following website provides a guide by country of which diseases to guard against:
MD Travel Health

Traveling to risky locations

The Foreign Affairs and International Trade Canada website provides updates on situations in countries around the world and whether it is deemed safe to travel there.