For Barbara and Alex Sgroi, the decision to sell their home in Canada and retire abroad wasn’t so much about leaving Canada as it was about finding their place in the sun.
“We were itching for a change, looking for an escape from winter,” Mrs. Sgroi says.
Friends of theirs had talked fondly of their experiences in Ajijic, a town of 11,000 in Mexico on the shores of Lake Chapala, near Guadalajara. After searching real estate websites, they stumbled upon an idyllic villa, complete with pool and palm trees. Two weeks later they’d bought the place.
“We chose Mexico because it was affordable and driveable,” Mrs. Sgroi says. “We could drive down with our dog and all our stuff packed in the car.”
Selling their home and starting over in a new country wasn’t a rash decision, however. The couple went south every winter for five years, staying for five months each time. Then three years ago they decided to make it permanent, and they sold their house in Fergus, Ont.
Mrs. Sgroi says that while she misses Canadian staples such as butter tarts and sweet corn, she now has access to fresh fruit, vegetables and fish year round. Property taxes, which in Fergus were about $5,000 a year, are just $50 in Ajijic. In addition, the good weather means they don’t have to spend on either heating or air conditioning.
Given that the Sgrois started slowly – learning about their destination before uprooting themselves – and that they have no plans to return to Canada, selling their home was a good choice.
But it’s not the right one for everyone. Those thinking about selling should take baby steps, says Carol Bezaire, senior vice-president, tax and estate planning, at Mackenzie Investments in Toronto.
“Spend a little time in the environment that you think you want to settle in,” Ms. Bezaire says. “Give it some test runs.”
Family is often a deciding factor for retirees. Those with extra time on their hands might not want to move far from children and grandchildren.
“Even very wealthy people who decide they want to move to a tax haven like the Cayman Islands realize that all their family and the kids and the grandkids are [in Canada] and it doesn’t work out,” says Jamie Golombek, managing director, tax and estate planning, for CIBC Wealth Advisory Services in Toronto.
Those not willing to put all their eggs in one basket should consider renting out their Canadian property. Not only will it provide income, but should circumstances change, the option to return home is still there.
But homeowners who have adopted a new tax home will need to pay a Canadian withholding tax on the rental income they receive, Mr. Golombek says. Most of these countries offer a credit for taxes that have been paid, however, so it doesn’t necessarily mean you will overpay or be double-taxed.
Choose your tenants carefully, though.
“If you rent it to a family member, you could be deemed by Canada to be a resident in Canada because you still own this property and you’ve got family in the house,” Ms. Bezaire says. “So Canada Revenue may think that you should still be paying tax in Canada.”
Given soaring house prices in Canadian cities, however, there may never be a better time to sell. While doing so might result in a cash windfall, those who don’t need the money immediately should consider what to do with it.
If the money is put into stocks or bonds, taxes will need to be paid on the dividends or interest. “It’s pretty hard to find a tax-free investment,” Mr. Golombek says.
“The nice thing about real estate is that hopefully the biggest gain you have, other than some rental income to cover the property taxes and the other fees associated with property repairs and maintenance, is the appreciation,” he says.
Collecting income from your registered retirement income fund (RRIF) or government benefits such as the Canadian Pension Plan (CPP) can also be more complicated when living abroad. Check to see which countries have tax treaties with Canada.
“If a country has a tax treaty with Canada … for your RRIF payment, your CPP, your OAS, there could be less tax withheld in Canada,” Ms. Bezaire says. “But quite often with a payment, if there’s no tax treaty, it could be up to 25 per cent that’s withheld in Canada. Then you have to file a tax return and claim it back where you’re living.”
Given the recent slide of the Canadian dollar, another consideration to selling and retiring abroad is exchange rates, particularly if the country you choose uses U.S. dollars as its principal currency.
“I think currency has become a big part of the equation recently, and, especially if you’re moving to the United States, you may be hesitant to sell that property right now if you need U.S. dollars,” Mr. Golombek says.
The Sgrois say they have already reaped the dividends of their move. Ms. Sgroi says the health care she and her husband receive in Ajijic is superior to that in Canada. For example, Mr. Sgroi sees a cardiologist for just $60 an hour, and there are practically no wait times.
The pair also enjoy a more active lifestyle than they would in Canada, and advantages that stretch far beyond just the weather.
“I find that people who are drawn to leave their comfort zone and live in a culture that is not their own do share a sense of adventure, a curiosity about life, a willingness to try learning a new language or making new friends that keeps them intellectually fit and fearless,” Mrs. Sgroi says.
Though life seems idyllic for her and her husband, there is always the knowledge that they have another option should they have a change of heart.
“I think we always know that we could go back home if we wanted to,” she says. “We will always be Canadians, no matter where we live.”
Source: The Globe and Mail
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