Once daily weather reports begin to include wind chill factors or frost warnings, the thoughts of many Canadian turn to the idea of spending part of the Canadian winter somewhere much warmer – most often, in one of the southern U.S. states.
And, while the anemic state of the Canadian dollar has required Canadians to downsize some of those plans, it is still the case that thousands of Canadian “snowbirds” fly south every winter.
Wherever they are going, and however long they are staying, it’s safe to say that none of those snowbirds are thinking of any possible income tax ramifications to their travel plans. And, for the vast majority of them, there are no such issues to consider. However, it’s never a bad idea to make sure that all contingencies are considered – no one wants a pleasant winter vacation to create tax or financial headaches down the road.
All Canadians who spend time out of Canada must address the need to obtain travel medicalinsurance, as there are no circumstances in which it makes sense to leave Canada without such insurance in place.
A lucky few may already have the needed coverage through their employer or, for retirees, their former employers. For those who don’t (and those who do but wish to augment such coverage), there is a need to obtain a travel medical insurance plan.
There is no shortage of companies which offer such plans and the terms and conditions of different plans vary greatly. Consequently, it’s not really possible to provide one-size-fits-all advice with respect to obtaining such policies, with two exceptions.
First, it is critical to determine the extent of the coverage provided, particularly when it comes to pre-existing medical conditions. Coverage exclusions in travel medical insurance policies almost always relate to conditions from which the applicant already has – and, of course, those are the conditions which are most likely to give rise to the need for out-of-country medical treatment.
Second, anyone applying for travel medical insurance should be clear on whether the issuer of a particular policy will pay out-of-country medical expenses directly, as they are incurred, or will require the insured to make payment upfront, and seek reimbursement after the fact.
While the cost of a trip to an emergency department for a few stitches may be within the financial reach of most snowbirds, the cost of medical care for more serious events – like a heart attack – can quickly run into the tens or even hundreds of thousands of dollars. Few individuals have the financial means to cover such costs out-of-pocket, even by using available sources of credit.
For snowbirds who are seeking the sun for only a few weeks, obtaining travel medical insurance is the biggest item on their to-do list before leaving. For those who are planning extended stays down south for a few months, or even the whole winter, other considerations can come into play.
On a very practical level, such snowbirds need to think about how they will access funds needed to live out of the country for an extended period. Many snowbirds are eligible to receive monthly payments from both the Canada Pension Plan (CPP) and the Old Age Security (OAS).
Fortunately, it’s relatively easy to arrange for payment of both while down south, as payments of both CPP and OAS benefits can be made by direct deposit to an account at a US bank where the Canadian recipient is located. Funds deposited in this way are converted to U.S. dollars prior to deposit, and the exchange rate used by the Canadian government will typically be better than most which can be obtained locally.
The other issue which snowbirds who are planning extended stays down south must consider is that of Canadian residency. Canada, unlike the United States, taxes individuals on the basis of residency, and individuals who spend a significant amount of time out of Canada during the year need to consider the effect that might have on their status as Canadian residents.
Fortunately, most snowbirds, even those who spend the whole winter down south, won’t have a problem since most of them will continue to be what’s called “factual residents of Canada”.
There is no single test for whether an individual is a factual resident of Canada – rather, the determination is made based on a number of factors which measure the extent to which an individual has continued to maintain “residential ties” to Canada.
The most significant of those factors include keeping a residence (whether owned or rented) in Canada, and having a spouse or dependents here. Where any of those three such ties are in place, that’s usually enough for the Canadian tax authorities to conclude that an individual remains a factual resident of Canada.
So, for example, in a typical scenario in which a retired couple spends three or four months each winter in Florida, leaving their Canadian home to be looked after by their children, there’s no question but that the retirees are factual residents of Canada, and their annual stay down south has no effect on their Canadian tax rights and obligations.
The vast majority of snowbirds who winter out of the country 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, reporting all income received during the year from both inside and outside Canada and claiming all available deductions. And, as an added “perk”, travel medical insurance premiums paid to allow the snowbird to winter down south without worry are deductible from income for Canadian tax purposes.
