In the previous blog, we looked at the all important task of obtaining travel medical insurance before you travel. Now, let’s look at access to funds and residency.
Access to Funds
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 snowbir
ds 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 US dollars prior to deposit, and the exchange rate used by the Canadian government will typically be better than most which can be obtained locally.
Residency
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 are the case, 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.
If you have any questions about these considerations or how traveling South, for the winter, could affect your tax planning strategy, contact us today!
