Thousands of Canadians, usually retirees, spend some or all of the Canadian winter as far south of the border as possible, often in Florida or Arizona. While the declining value of the Canadian dollar has made such sojourns much more expensive, meaning that some vacation plans may have to be scaled back, many Canadians will be planning at least a short stay in a warmer place this winter.
Leaving the Canadian winter behind for a few weeks or months, however, doesn’t mean leaving behind the Canadian tax system. No one gives a lot of thought to the tax implications of taking an out-of-country vacation, but the reach of our tax system is a long one, and there are financial and tax issues to consider when planning to spend an extended period of time outside the country.
For most Canadians who go south for a few weeks or even a couple of months during the winter, there aren’t typically a lot of such tax consequences. Such vacationers usually remain, as it is called in tax parlance, “factual residents of Canada”. In practical terms, the income of such taxpayers is treated, for Canadian tax purposes, as though they had never left Canada. Factual residence is determined by the Canada Revenue Agency (CRA) on the basis of whether a taxpayer has maintained “residential ties” to Canada. Such residential ties could include continuing to own a home in Canada, having a spouse or dependants who remain in Canada while the snowbird is out of the country, having personal property (like a car) in Canada, and continuing to hold a Canadian driver’s license and medical insurance.
The vast majority of snowbirds who winter down south do maintain sufficient residential ties to Canada to be considered factual residents. Consequently, when they file their tax returns for the year, they follow all the same rules as year-round Canadian residents. They report all income received during the year from both inside and outside Canada and claim all available deductions and credits. Income tax is paid to the federal government and to the province with which their residential ties are kept. Finally, snowbirds who remain factual residents of Canada remain eligible for the goods and services tax credit, which may be paid to recipients outside of Canada.
Health care coverage
One of the biggest concerns of many snowbirds is maintaining health care insurance coverage while out of the country. In all cases, the availability and degree of coverage will depend on the health care plan in effect for the province or territory of which the snowbird is a resident, so it’s not possible to provide a one-size-fits-all answer to the question of the availability and extent of out-of-country coverage. As well, the rules governing such coverage are subject to continual revision, and it’s therefore critical that anyone planning an out-of-country stay confirm in advance the current rules governing such coverage. The prudent course of action followed by most snowbirds is to obtain supplementary health-care coverage, and the premiums paid for such coverage can usually be claimed as a medical expense on the Canada tax return. As well, any out-of-pocket costs incurred for eligible medical expenses while out of Canada (whether for the individual or his or her spouse) can be claimed as a medical expense on that year’s tax return.
One note of caution with respect to private supplementary health insurance is, however, warranted. Such insurance can sometimes be obtained at the last minute over the phone or online, but that’s not necessarily the best approach. The requirements imposed on applicants for such insurance are becoming more and more difficult to fulfill, and it seems as well that insurers are scrutinizing claims much more stringently than they have in the past. In the circumstances, the best advice for those seeking to obtain travel medical insurance would be to start early, shop around, and read and complete the application forms and any other documentation provided by the insurer very thoroughly. It wouldn’t even be out of place to obtain professional advice from an independent insurance broker or a lawyer, to ensure that one’s understanding of the requirements of the application form and the terms of coverage provided by the travel medical insurance policy is correct. Taking such a step might seem extreme, but Canadians who have incurred unexpected out-of-country medical expenses for which coverage has been denied by their insurer have faced medical bills amounting to more than $100,000. For most retirees, such an occurrence would be a financial disaster, at a time of life when they can least afford it. Time taken to ensure that any coverage obtained will be available if and when it is needed is always time well spent.
Old Age Security and Canada Pension Plan payments
Both Old Age Security (OAS) and Canada Pension Plan (CPP) benefits can be paid to benefit recipients who are living outside Canada, and there is no change in the amount of the benefits. As well, such payments can be made by direct deposit, and in US dollars.
Application of US tax laws
The application of US tax laws to snowbirds can, unfortunately, be a good deal more complex than the corresponding Canadian laws. Generally speaking, snowbirds who spend only a few weeks down south in the course of a calendar year are unlikely to be caught by any US tax filing or payment obligations. Those who extend their stay for longer than that—and certainly those who spend more than half of the year in the United States—should seek professional tax advice from an adviser familiar with cross-border taxation, to make certain that they are in compliance with any applicable US tax requirements. The US Internal Revenue Service also provides a (relatively) plain-language guide to the applicable rules on its website, atwww.irs.gov/Individuals/International-Taxpayers.
The CRA no longer publishes its printed guide to the tax implications of spending extended periods of time outside Canada, but a section of the CRA’s website is devoted to issues affecting Canadians who spend part of the year down south, and that information can be found at www.cra-arc.gc.ca/tx/nnrsdnts/sth-eng.html.
