Permanent Snowbirding
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| Retirement living |
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| Retirement living |
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Many retired Canadians find it attractive financially to head south every winter season to escape winter and enjoy cheaper living costs in Florida, Texas, Arizona, or Mexico. While living expenses are growing in every location, certain items like clothing and liquor are substantially cheaper. The main extra expense is health coverage. Canadian medicare remains in force as long as you are out of the home province less than 6 months. So most coverage builds in an assumption that you will be returned home in the event of a serious condition. Considerations here are that if you drive, you may find that you are back in Canada while your car remains south.
Many Canadians choose to purchase their place in the sun. This raises several complications. In the US, resident aliens are subject to estate taxes. If you own rental property in the United States or spend extended periods of time there, you could be subject to various U.S. filing requirements, even though you may have no U.S. tax to pay.[1] So given the odds are 50% that you might die while there[citation needed], it is important to take the necessary legal steps to assure that your property remains in your estate for use by your spouse or for the benefit of your heirs. A White Paper that lays out some of the complexities is available here. Nothing is insurmountable, but some planning can save heartache later.
In Mexico, properties within 30 km of the ocean or 50km from the border cannot be owned outright. They are maintained in a banking trust for your exclusive use. They can be resold without obstacle. And the trust can handle succession issues automatically.
There are capital gains considerations in owning property and these are dependent on the specific location. But they are not zero as they might be in Canada. These can be deferred through appropriate legal mechanisms implemented ahead of time.
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US substantial presence test
Snowbirding Canadians should be aware that the US Internal Revenue Service (IRS) applies a test known as the “substantial presence test”[2] to determine whether an individual who spends part of the year in the U.S. is a resident of the U.S. for U.S. income tax purposes.
If you meet the substantial presence test in any given year, you’re automatically considered a U.S. resident for U.S. tax purposes for that year and are, therefore, subject to U.S. tax and filing requirements. This will be so, even though you may also be a Canadian resident and pay Canadian taxes.[1]
Life in Puerto Vallarta, Mexico
Puerto Vallarta (PV), Mexico is an attractive winter location. Facilities such as high speed wireless internet, Magicjack VOIP, and Canadian Satellite TV make life easier. A Canadian car can be used.
Costs are about 40% cheaper than Vancouver. Weather is delightfully boring. UPS can be used for forwarding snail mail currently and a mail scanning service may also be available.
An international health policy based in Mexico can be purchased. It has deductibles, copayments and limits much like US health insurance. 3 months hospitalization outside the country is covered every 12 months (and longer at a reduced rate). There are no added restrictions on coverage.
A doctor's visit is 300 pesos. A hospital overnight stay is about 5000 pesos with IV and tests. Drug prices are comparable to Canada (25% cheaper than US). Coverage is about $1k/mo each for a couple, 50% higher after age 65. Hospital facilities are good and advanced equipment is plentiful. An MRI or CT Scan can be obtained the same day with results sent by email.
Phone and high speed wireless internet is 389p/mo. Property taxes are 14p/thousand each year. Electricity costs can run at 1000p/mo. Water is 200p/mo. Car insurance is 4000p/year. Satellite TV is C$63/mo (Shaw Direct) and covers both a PV home and a Canadian home (Vancouver) with 6 receivers. MagicJack is US$20/year.
Fine dining out can cost from 200p each to 800p with wine and tips depending on the specific restaurant (beachfront, view, gourmet). Eating in a local Mexican restaurant with a beer would run about 80p.
Exchange rates have been 14.5p/USD and 11.3/C$ most of the 2009 season.
References
- ↑ 1.0 1.1 BDO Canada Tax Bulletin, July 2011, U.S. Tax Issues for Canadians, viewed August 21, 2012.
- ↑ US Internal Revenue Service (IRS), Substantial Presence Test, viewed August 21, 2012.
External links
- Canada Revenue Agency, Canadian Residents Going Down South
