What About Taxes?

Apparently Benjamin Franklin once said that death and taxes are the only things that are inevitable in our lifetimes.

You can try to reduce your taxes, but, death is something you kinda gotta deal with all at once...

The difference between death and taxes is that death doesn't necessarily get worse every time every time the government strikes a new budget.

Many people have asked us what we do about paying taxes during our traveling days, and then they ask what we would do to address taxes when we decide to settle down somewhere. Both are good questions. I believe we might have posted a few thoughts on this in one of our early posts (July 2015), and yes, this is a boring subject but it would be beneficial to look into this if you decide to follow our footsteps. You will need to do some research based on your own income bracket, but this is our basic understanding of things...

As long as we are traveling and staying for a short term basis as tourists in each location, and our only income (pension) is from Canada, we are still deemed residents of Canada for tax purposes. There is a whole section on that in the CRA website... We just complete our normal T1 tax return documents. It's easy to file using Turbo Tax.

If we start earning income from sources other than Canada, we are taxable in the country where it is earned and a tax return would be filed in that country. In order to do that we would need to apply for a work permit, and that normally means having some sort of residency status attached to it. We are quite sure that neither of us wish to start working in the near future so it won't be much of a problem. If we did have income, Canada would also ask for that information in "Schedule A" - statement of world income - on our tax return.

Our pensions will continue to be paid to us regardless of where we live. We expect that one day we will likely make a decision to sever formal residency ties with Canada. We would then apply to become "non-residents" for tax purposes. When that happens we will need to be mindful of what the tax implications are to us in our new home country. Some countries ask us pay tax on world income at their tax rates. Canada usually says that any tax paid to them will be a credit toward our Canadian taxes payable. The problem is that some countries will tax us at a higher percentage than what you would pay in Canada, so you might end up with a net loss of income.

A special Canadian tax return is needed for non-resident Canadians. Once we become non-resident Canadians for tax purposes (183+ days out of Canada per tax year), we would be subject to a tax under Part XIII of the Income Tax Act at a flat rate of 25%, unless there is a tax treaty with our new country of residence. Countries that have tax treaties with Canada are listed in the CRA site and the Department of Finance website. http://www.fin.gc.ca/treaties-conventions/tieaaerf-eng.asp

If there is a tax treaty with Canada in our new country, section 217 of the tax act allows non-residents to apply for a reduced tax to correspond with the tax treaty amount listed for that country. Of course, there is a special form for that and it can take some time to get your new status approved.

For example, the tax treaty that Canada has with Barbados says we would be taxed at a flat rate of 15% as non-resident Canadians living in Barbados (once / if we get our residency status there), rather than the flat rate of 25% in the general tax act for non-residents.

15% tax is better than paying 25% tax. The 15% tax can be deducted or withheld at the source (RSP income, superannuation pension, CPP, OAS, or other Canadian incomes, including death benefits...). This needs to be done through applications to the Canadian income sources in conjunction with CRA. Once approved, it could mean that we would never have to submit another tax return to Canada while we enjoy your new residency in our new home country. And, if we do start working in our new country, where ever that may be... we would submit a tax return to that country only.