Canadians living in Mexico

I have been in Chapala for a couple of years now, returning to the Great White North for only a couple of months per year, have kept a Canadian address, passport, drivers license, and completed annual Canadian tax returns showing I was still living in Canada. Now the time I spend in Mx. has gradually increased to where I am spending more time in Mexico each year and it is looking like it may become full time here. So it may be time to declare this.

Can anyone give advice on the ramifications of coming clean with Revenue Canada and declaring I am now living in Mexico full time? I have heard many say to not reveal this that it indeed opens up a can of worms.

otrocanuck wrote:

Can anyone give advice on the ramifications of coming clean with Revenue Canada and declaring I am now living in Mexico full time? I have heard many say to not reveal this that it indeed opens up a can of worms.

who are the "many" that told you this utter bs. there are many threads on here about revenue canada.
you will either be taxed a straight 15% or as a "factual resident" of the province you left. you must divest of your canadian property holdings. a couple we know who still go back on occassion simply gave their canadian house to their daughter since she was going to inherit it anyway. that's where they stay.
we have all our funds in a canadian bank and that is not a factor. i have renewed my "canadian" passport twice here in mexico. i used my alberta dl here until it expired. the "cra" has our mexican address which is our only address for canadian tax purposes. so does cpp and oas and any other pensions. and our bank of course.
relax!

Pedro I just did a search on this forum for "revenue Canada" and it came back with one result, one you had commented on. Where are the "many threads on here about revenue canada" you mention, I would like to read more?
15% of what ? Income earned in another country before paying local tax or after?? Total income?? net income??

we sold our Canadian house before moving here so there is no more property in our names in Canada and we use our son's address in Alta. for ours, and stay there when we return.

You need to talk with a Canadian Tax Accountant. I don't recommend getting advice from these forums as every situation is completely different than Pedro's.

You are right Bob, I intend on consulting a tax specialist, I have my taxes prepared for me each year by one but I know so little about declaring foreign income and residency I wanted to get opinions from others who have done this already and decide if it would be better to keep up the pretense of living there still.

http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html

otrocanuck wrote:
Can anyone give advice on the ramifications of coming clean with Revenue Canada and declaring I am now living in Mexico full time? I have heard many say to not reveal this that it indeed opens up a can of worms.

What worms? My husband and I consulted with a local Canadian tax advisor and found that, in general, becoming official non-residents allows Canadians to pay less tax - which seems quite fair since as non-residents, we also receive fewer government services. We've already lost our health care due to our long absence, and although my husband had kept his Canadian driver's licence up-to-date, he doesn't need it because he drives a Mexican plated car with a Mexican driver's licence.

You can keep your Canadian bank accounts, private pension plan, Canada pension, and so on. You will keep your Canadian passport and citizenship. As a citizen, you retain the right to move back to Canada whenever you want.

If you don't have any Canadian real estate or businesses to complicate matters, and if your present tax rate is over 15%, you may very well find it's financially beneficial to declare non-resident status. Do consult with a professional before making your decision, and don't pay any attention to people who try to scare you with imaginary worms.

CanuckBob wrote:You need to talk with a Canadian Tax Accountant. I don't recommend getting advice from these forums as every situation is completely different than Pedro's.

every canadian non resident has the same options as i do. i have never used a canadian tax consultant but found the canadian revenue agency ,international tax services office, very helpful. many years ago i talked to a tax consultant in canada who knew less than i do now but go ahead and spend some money as bob suggests.the 15% flat tax is on all income and you need not file anymore.the cra agent i talked to before we moved said:hey,we really don't know what your off shore income is anyhow[nudge nudge wink wink] if you get the factual resident designation for alberta[e.g] you file annually and can deduct ALL medical expenses[doctors,hospitals,dentists,drugs] and pay taxes as if you were in alberta[if that was your previous actual address] which has the lowest income tax in canada. if your med expenses are high like ours,factual is the way to go. one year we got back $6000 of $24000 out of pocket med expenses. and the normal tax exemptions as if you are a resident of alberta even though you are permanently in mexico
the 15% flat tax is covered by a canadian/mexican tax treaty. you have a revenue property here in mexico so on that income you have to pay tax in mexico but not canada.[nudge nudge wink wink]

Well here are a few examples (both pro & con):

- certain types of dividends only require a 10% taxation if you declare non-residency.

- if you can live on "personal exemption" which is $11,500 per year, per person, then you will pay 0% taxes if you maintain your Canadian residency. You will get a tax refund for anything you had held back from your RRSP withdrawal's, CPP & OAS payments (assuming your investment returns were flat or declining).

But like I said....best to get a tax accountant that knows his stuff (not Pedro's guy). My accountant has over 50 expats in his client base.

factual residency designation is not maintaining canadian residency.as a factual you don't have a physical address in alberta but for tax purposes you are an albertan. your mexican address will be your actual address of record. i don't have a guy,when needed we deal with ottawa directly as stated at no charge.after deductions which are permitted, your income tax could be lower than 15%.

There are pros and cons, as Bob said.

I completed the form NR73 Determination of Residency Status (Leaving Canada) - Available in PDF - Here. After living in Mexico for two years and received my letter designating me as non-resident, backdated to my original date of departure. Other than it taking a LOT longer than CRA had originally calculated the process was fairly painless.

They look at residential ties - real estate owned in Canada (permissible if you rent it out on 12 month lease), location of spouse or children, employment income, etc. Secondary factors like having Canadian bank accounts, credit cards, or driver's licenses only come into play if your actual residency is "questionable". (For instance, if your real estate is rented out to a family member. Won't necessarily disqualify you but looked at in the context of the secondary factors it could.)

One of the problems you may encounter is dealing with your Canadian Bank. Mine (which shall remain nameless) knew nothing of the process and implications. I basically had to educate THEM about what it all meant and they STILL withheld more than required under the tax treaty between Canada and Mexico. (So I will voluntarily file for 2014 to recover much if not all of the additional.)

Generally, if you legitimately intend to sever all residential ties with Canada, it will be beneficial (in tax costs) to be deemed non-resident. But, of course, everyone's situation is unique and I heartily encourage you to follow Bob's advice and seek professional guidance.

CanuckBob wrote:Well here are a few examples (both pro & con):

-  certain types of dividends only require a 10% taxation if you declare non-residency.

- if you can live on "personal exemption" which is $11,500 per year, per person, then you will pay 0% taxes if you maintain your Canadian residency. You will get a tax refund for anything you had held back from your RRSP withdrawal's, CPP & OAS payments (assuming your investment returns were flat or declining).

But like I said....best to get a tax accountant that knows his stuff (not Pedro's guy). My accountant has over 50 expats in his client base.

A retired couple in Canada can have $32,000 income per year and pay no income tax.

(ask your relatives)

Maybe if they are over 65, but in my case we have a while to go and $11,500 per year is personal exemption. Like stated above, everyone has a different circumstance.

canuckBob is correct. This is for an accountant.  It mainly depends upon whether you have investments or not. As a resident, dividends from Canadian corporations are taxed at a preferred rate, but only if you are a resident. The other thing is if you used the 'home buyer's plan' as a down payment for your house and are still paying that off, you will have to pay that in full when you declare non-resident. Those are the 2 gotcha's I know

But seriously, ask an accountant, not the internet.

You can 'elect' to remain, for income tax purposes, under Section 217, as a Canadian resident. CRA will only allow that if you actually will benefit. For countries without a tax treaty with Canada, the withholding tax is 25%, not 15%.

http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/snrs_217-eng.html

Mexica and Canada have signed an income tax convention:

http://www.fin.gc.ca/treaties-conventions/mexico_1-eng.asp

It really depends on your sources of income to figure out if it is beneficial for you to make the Section 217 election. You need to consult an accountant.

I am not promoting, but I have just bought copy of Canadian Snowboard Guide by Douglas Gray. It covers both the USA and Mexico for us Canucks (oh my hockey team!). It has tons of useful information including a few relevant sections on taxation for those of us considering moving to another country permanently.

you can be designated as a "factual resident" of the province you last lived in, which means that you continue to file each year and allowed to use deductions like all your medical expenses plus your personal exemptions.

Do they allow dental deductions Pedro?

yes and physio and drugs. probably chiropractic too but i don't use that. you get roughly 1/3 back of what you have spent.

All tax credits are still available as if you were still a resident for tax purposes of the last province you lived in. If you elect to be a non-resident, you are obliged to inform all your income source providers, including CPP and OAS, your bank, etc. They will then have to withhold 15 or 25% (basically a flat tax) depending on your country of residence (those tax treaties). So if your income taxes as a deemed resident are less than either the 15 or 25%, it would be better of if you chose the Section 217 election. Again, because taxable income from various different sources are treated very differently, you should consult a tax accountant familiar with the non-residence status to determine which strategy makes more sense in your situation.

we have been filing as factual residents of alberta for almost 9 years and don't need a tax consultant[and never did] other than the helpful people at cra. so what i have posted about it is from actual experience. cra gave us the fr designation when we became nonresident. you have a choice as a nonresident. since our medical expenses are rather large we will keep our fr designation, thanks.
i never heard "deemed " resident-i think you mean "factual" which is what cra calls it.
once you are on the nonresident for tax purposes instead of being a factual nonresident,you do not have to file annually anymore . you pay 15% and are not allowed any deductions.

Interesting reading.

Living  Abroad

Interesting discussion.  FYI in US you are taxed on worldwide unearned income as a full time expat. No exceptions except for earned income.  So are Canadians taxed on worldwide income even if you have no house in Canada and live in Mexico full time?  

Z

Hi Z.. The answer is both Americans and Canadians are taxed on their worldwide income. The difference is complicated.

Canadian who are 'non-residents' for income tax purposes will face either a 15% or 25% withholding tax (depending on the existence of tax treaties or not) when their income sources remit their incomes overseas. So that 15 or 25% effectively becomes a flat tax. There is no CRA filing requirements and therefore no tax credits can be claimed. However, under sec. 217 of the Canadian Income Tax Act, a Canadian who is no longer physically living in Canada (less than 183 days per year) can elect to remain a 'resident' for income tax purposes and will be required to file Canadian tax returns every year. It is complicated, because whether that is beneficial will depend totally on what the sources of income are. If they have no sources of income (such as non-government registered pension plans or dividends) other than their government pensions, it is likely that they will not have to pay Canadian income taxes because of the tax credits available. So it would be better if they elect to remain 'residents' (factual as Pedro says) for tax purposes.

From what I understand (because we have a number of friends here in Canada who are American citizens), American citizens are taxed of their world income regardless of where they reside as long as they are American citizens. This has become a big issue for American citizens in Canada (and I assume elsewhere) even when they were born here in Canada. Some of them don't even realize they have to file American tax returns even when they have never lived in the USA. I think there are over 500,000 American citizens living in Canada.

So that is the complicated story.