If you’re interested in heading north for retirement, it’s important to think through the implications the decision can bring. “Many Americans assume that moving to Canada is easy and that there’s a special pathway for Americans, since our two countries are so closely connected,” says Cori Carl, author of “Moving to Canada: A Complete Guide to Immigrating to Canada Without an Attorney,” who lives in Toronto, Ontario. “However, that’s not the case. There’s no simple way for Americans to retire in Canada.”
Before planning to retire in Canada, consider the following:
— What type of visa and residency to pursue.
— How your tax situation will change.
— What the cost of living will be.
— Your retirement goals and lifestyle preferences.
Use the following guidelines to help sort through how to move north to Canada for retirement.
Decide if You Want to Be a Tourist
When Americans of any age enter Canada, they automatically receive a tourist visa that is valid for up to 183 days. If you’d like to stay longer, you can fill out a small amount of paperwork and receive permission to extend your stay. As a tourist, you’ll be able to purchase a vacation home and set up a bank account in Canada. “I’ve done this myself and never had any problems at the bank or at the border,” Carl says.
This might be a viable option for those planning to split their retirement time between two or more locations. If you spend six months of the year in a southern U.S. spot, you might find it appealing to live the remaining time in Canada. You’ll be considered a U.S. citizen and will need to pay U.S. taxes through this setup. You won’t have access to Canadian health care coverage and won’t be subject to Canadian taxes.
Research Other Visa Options
If you have children or grandchildren in Canada, you can apply for the parent and grandparent super visa. This type of visa would let you live in Canada for up to two years at a time, but it doesn’t provide access to provincial health coverage or other benefits of residency. To qualify for this super visa, your child or grandchild must be a citizen or permanent resident of Canada and write a letter promising to financially support you for the duration of your visit.
Understand What Permanent Residency Involves
For those planning to stay in Canada for more than 183 days each year or who are not eligible for a family super visa, it may be possible to apply for permanent residency. As a permanent resident of Canada, you’ll have access to government-based programs such as health care. Permanent residency can also lead to Canadian citizenship.
If you want to become a permanent resident, “The older one is, the harder it gets,” says John Richardson, a Toronto-based lawyer who assists U.S. citizens in Canada. Canada does not have a retirement visa per se. Paths to permanent residency include an immigration process called “Express Entry” set up for those who have certain skills or want to operate businesses in Canada. Some Canadian provinces have immigration options that are based on graduation from Canadian universities or open to people in specific professions. If you’re planning to have a second career in retirement and are looking at working for several years, these might be viable immigration options. It is likely that these would require planning prior to retirement in the United States.
Don’t Overlook Taxes
Moving to Canada doesn’t mean you’ll need to give up your U.S. citizenship. You can receive Social Security benefits while living in another country, but you’ll also likely still be subject to U.S. taxes if you earn supplemental income as well. This is because the United States carries out citizen-based taxation. “Retirees in Canada may still owe U.S. taxes on their U.S. retirement income along with any other Canadian earned income,” says Nathalie Goldstein, CEO of MyExpatTaxes, who is originally from San Jose, California, and currently resides in Vienna, Austria.
There is a tax treaty between Canada and the United States that outlines which country has the taxing rights on items such as Social Security benefits and other foreign retirement income. “If the tax treaty states that the U.S. still holds taxing rights, then American retirees need to plan their money wisely, since they most likely will be giving a portion of it back to the IRS every April 15th,” Goldstein says.
In addition to the IRS, you may need to declare your worldwide income to the Canada Revenue Agency, Canada’s version of the IRS. “At first glance, it may seem like U.S. retirees will be double-taxed by both the U.S. and Canada,” Goldstein says. “However, that is not the case, if they are able to optimize their tax return using the benefits defined in the U.S. and Canadian tax treaty.”
Consider the Cost of Living
Everyday expenses might be lower or higher in Canada, depending on the area you live and lifestyle you choose. “Housing costs are lower, and permanent residents receive free health care,” says Troy Daum, a financial planner and founder of Wealth Analytics in San Diego, who has worked with clients planning to retire in Canada. “However, many are surprised to find that almost everything else is more expensive in Canada.” Sales taxes might be higher than where you currently reside. “Most food items are imported from the U.S. and are quite a bit more expensive,” Daum says.
If you’re planning to drive a car in your new area, your current vehicle might need to be modified to meet the Canadian government emissions and safety standards. “Gasoline is also more expensive in Canada,” Daum says. You might pay between 20% to 25% more than what you currently spend on fuel.
For those who only spend several months of the year in Canada and don’t become permanent residents, you may need to purchase international health insurance. “Find a plan that will cover you if you get sick in Canada before you go,” Daum says. You generally cannot use Medicare for health care services in another country.
Talk to a Professional
Due to the tax complications, residency and visa decisions, and various costs related to the transition, it can be helpful to sit down with an attorney or financial advisor before making the move north. Without careful financial planning, “Moving from the United States can open you up to all kinds of stress, taxes and penalties,” Richardson says. Look for a professional who understands issues from both a U.S. and Canadian perspective to help evaluate the potential financial impact of your move to Canada. Go over your retirement accounts, estimated cost of living in the new place and expected Social Security benefits. Then look at health insurance choices, travel plans and lifestyle preferences to decide the best place to spend your retirement.