Author Topic: Can"EH"dian Tax - You have questions, I have answers  (Read 207496 times)

Lews Therin

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #800 on: July 12, 2019, 04:19:35 PM »
jwhid, you'll have better luck placing this as a case study, as there is a lot of extra information needed to best recommend your withdrawal path.

Maybe take a look at the Sticky ''how to write a case study'' and then put (CAN) in the title, you'll get lots of recommendations and excellent information.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #801 on: July 13, 2019, 08:19:44 AM »
I’ve been reading through your posts and really appreciate the insight you’ve been giving regarding tax implications for us Canadians.  Lots of information out there for our comrades south of the border, so I’ve struggled a bit to make a plan that best suits my situation and would appreciate your feedback.

At 43 (currently 41)  I plan to FIRE.  Wife and 2 dependent children, Alberta resident, however work in BC.

My expected Portfolio:

RRSP - $250k  through Sunlife
TFSA - $100k – invested in XAW

DCPP -$250k value currently with Sunlife.  I plan to move this to an LIRA and then LIF at 55.

Taxable investment account with RBC - $100k value, a mix of ETF’s and a few dividend focused stocks.

Total portfolio value of $700k.

Rental Profit of $30k annually (20k per annum from a multifamily in AB and 10k per annum from a condo in Arizona)

With a 4% withdrawal rate I anticipate my income will be roughly $60k per year (taxes notwithstanding).

I would really appreciate any insight or feedback on best way to minimize my tax implications once I pull the trigger and FIRE in 2 years.
Because you are more interested in Tax specific responses, this thread should be fine.

Tax only --  I assume that the $60k is the FAMILY income / needs.

1.  Look into more CDN dividends for your non-registered.  There is ZERO tax on them up to $47k of income, per person.  There is negative tax rate on them at lower amounts.  Why?  Because the way they work -- the grossed up amount is taxed at your current marginal tax rate and the credit on the gross up is provided at a set rate. 

2.  Shift money into your TFSA, Draw down your TFSA and Non-registered to keep your family income low, and your child tax benefit is higher.   Don't draw down your RRSP in the first few years of retirement, use something that won't contribute (much) to your income until kids are older. 

--$60k drawn from RRSP 50/50 with no employment income gets you $7,300/yr in government payments. 
--$60k drawn as $20k from TFSA or non-tax portion from selling non-reg stocks, $10k each parent as employment income, $10k each parent from RRSP or taxable growth on non-registered= $12,630/yr in government payments.

Check out the CRA Child Benefit Calculator (google it).  And play with the numbers.


3  If going to alberta, with lower family income, try to work to make even $10k each per year.  There is an Alberta employment tax credit, worth $1500k, included in the above example.

4.  No sales tax.... but 1.5% to 2% higher marginal income tax at your income.  AB vs BC. 

Also -- Note that I have lived in AB and BC with kids.  It is cheaper in the greater vancouver area for kids, because so many of the recreation programs are highly sponsored, and there are lower school September fees in BC.  Calgary has bussing (fees for bus and lunch hour) and start of school year fee.  I don't know what the high school fees look like in AB, but my BC kids fees were surprisingly low for things like shop class, gym out trips, or band.  Calgary relies on community rec centers  (Think HOAs for the community) and the YMCA for programs / pools etc. which are privately run with limited funding from the city.   BC doesn't and BC removed the parking fees at all BC provincial parks.., the schools and centers don't charge much for room use to the scouts /judo / dance instructors, which is passed on, more free lunch programs at the schools, etc . I just find family activities in BC cost less...   

Stasher

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #802 on: July 13, 2019, 10:01:48 AM »
I am FIRE right now while my wife brings home a very small income from here business, we basically fall under the poverty line if you looked at the Line 150 on both of our tax returns for 2018. I took my very first RRSP withdrawal this week as up to this point over the last 2 years since leaving work I lived off my savings account as I built that up a fair amount prior to pulling the plug. In BC our taxation is basically nothing and the only amount I had to pay this year was into CPP at $900. My work was freelance self employed income so I still qualify to build up more pension.

I look at your numbers and your age and kids, heck it's like a mirror image to me almost right down to the LIRA, TFSA, RRSP and rental property :) It will be interesting to see what other advice you get here, I didn't consider drawing down my TFSA at all and thought if I could keep my annual income low enough I would slide more cash from my RRSP into the TFSA to keep that growing.

K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #803 on: July 13, 2019, 11:24:34 PM »
....
I would really appreciate any insight or feedback on best way to minimize my tax implications once I pull the trigger and FIRE in 2 years.

Goldilocks always gives great advice.

You want to google asset location (not allocation) to get a better idea of what to put where.

You probably want to move your RRSPs over to RBC as I assume you are doing self directed investing there. This should minimize your fees.

Allocation & your risk tolerance takes priority over “location” but you should generally follow something like this:

Taxable = Canadian dividend equities (VDY for me)
RRSP = any equities in USD & some say your bonds (VIT & VAB for me)
TFSA = ETFs that you expect to be high earning (VXC for me)

I’m not exactly sure where a LIRA falls into this group, but my guess is to treat it like an RRSP.

For the drawdown I’d focus on taxable & TFSA until you are about 60.  Then have a plan to reduce your RRSP & LIRA before you are forced to at 71.

I’m not sure but you might want to get fancy with your TFSA & take out what you need for the next year in December but recontribute from your taxable stash in January.

I also saw something the other day that recommended if you were below or at the 38% tax rate you were best to turn off your drip & cash out your dividends first. If you were above that rate keep the drip on but sell stocks & take the capital gain hit. Of course if you are in the lower rate & your dividends don’t cover your expenses then you will need to sell some stocks as well.

Please double check & do your own research as I am not a financial expert but love all the information I have learned on these forums & I’m happy to share.

Congratulations on being on track for an early retirement & for having mustachian people problems.


Mighty Eyebrows

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #804 on: July 15, 2019, 05:50:50 PM »
2. I have been trying to do most of my corporate taxes myself but still use an accountant to file my corporate return.  I input my expenses and bank statements into Quickbooks.  She charges me for the return and also insists on charging me for "payroll".  I am confused as to what payroll is and what I am actually paying for.  I do not pay myself monthly and have no employees.  I pay myself one lump sum at the start of the year, from which I deduct income tax and CPP and pay directly to the receiver general the month following the lump sum payment.  At year end I pay myself a bonus from which I again deduct income tax and CPP and pay to the receiver general.  Does payroll require any further work? Is there something that needs to be filed to the CRA each time I pay myself, or is a payment to the receiver general enough?

My accountant unfortunately won't answer these questions, telling me it is all too complicated to understand...

I know this is from a week ago, but I wanted to add to what Goldielocks posted. I do the T4s and summary at the end of the year for our small business and we have up to 5 employees. It is not hard and you can definitely do it yourself. Filing monthly/quarterly payroll remittances with CRA is also not hard.

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/remitting-source-deductions/how-when-remit-due-dates.html

If you have an accountant that says "it is all too complicated to understand" you either need to have a serious talk or get a new accountant. Have fun!

(Edit to add: You may also have WCB reporting requirements. That is also something you can learn to do yourself.)
« Last Edit: July 15, 2019, 05:53:31 PM by Mighty Eyebrows »

kenmoremmm

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #805 on: July 16, 2019, 04:30:34 PM »
i just came across this thread, and haven't digested all the pages yet, so forgive me if a similar question has been posed. and, thank you for this effort!

my question is what kind of tax implications there would be for US citizens moving to canada (BC or AB) with the goal of residency. one income is still US-based as a remote contractor (say $100k+ USD). the other income would be in the place we move to and in CAD currency (say $60k). there would also be US-based rental income (say $20k).

is this a nightmare setup in terms of taxation?

thanks for your insight!

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #806 on: July 17, 2019, 09:23:05 AM »
i just came across this thread, and haven't digested all the pages yet, so forgive me if a similar question has been posed. and, thank you for this effort!

my question is what kind of tax implications there would be for US citizens moving to canada (BC or AB) with the goal of residency. one income is still US-based as a remote contractor (say $100k+ USD). the other income would be in the place we move to and in CAD currency (say $60k). there would also be US-based rental income (say $20k).

is this a nightmare setup in terms of taxation?

thanks for your insight!
Double check the "us based income as a remote contractor" part first.   My DH had to sell his on-line Canadian business when we moved to the USA.  Although it was all over a computer, to the US, running a canadian on-line business from home was considered to be working in the USA and required a work visa.  AND it took over 6 months to get that work authorization so the business had to be ended when we moved or put on hold in the meantime.

Usually there are reciprical rules for Canada to what the US does.  If your spouse will be getting a remote contractor work visa for Canada, then you are fine.

I don't have any tax info for your situation, other than that you will file full taxes with worldwide income for the US, and then Canadian tax returns with worldwide income because you are resident.  Usually you get a tax credit for foreign taxes paid, so it does not double up, but some residency situations vary according to your nationality and marital status as to whether you can still file jointly on your US return when out of the USA.   That would be a storm of bad things -- if you can't file US taxes jointly, and you can't claim standard deduction for some reason. 

 I would get professional input on these questions.... especially on the US tax side, there are so many nuanaces depending on each specific situation.


moustacheverte

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #807 on: April 03, 2020, 10:45:33 AM »
I have question about moving out of Canada and departure taxes on investments.

We moved out of Canada in the middle of last year to Switzerland. I know there is a departure tax to pay on our investments as if we had sold them at the date we moved out and instantly bought them back.

How is this calculated, and how to find an accountant that would understand how to file this properly?

Is there anything else I'm overlooking and that we're supposed to pay? We didn't own any house, car, or anything. Only mutual funds with Waterhouse.

And now that we've moved out, do we owe anything else to Canada if we were to sell all our Canadian investments, convert the money, and invest back with our Swiss broker?

FIRE Artist

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #808 on: April 03, 2020, 12:06:09 PM »
I have question about moving out of Canada and departure taxes on investments.

We moved out of Canada in the middle of last year to Switzerland. I know there is a departure tax to pay on our investments as if we had sold them at the date we moved out and instantly bought them back.

How is this calculated, and how to find an accountant that would understand how to file this properly?

Is there anything else I'm overlooking and that we're supposed to pay? We didn't own any house, car, or anything. Only mutual funds with Waterhouse.

And now that we've moved out, do we owe anything else to Canada if we were to sell all our Canadian investments, convert the money, and invest back with our Swiss broker?

Just use the value of the stock at either opening or closure on the day you left (just be consistent for all your holdings), and deduct your NBV from that.  That is your capital gain that you owe tax on.  What you are doing is A Deemed Disposition. 

You should only do a Deemed Disposition if you are becoming a non-resident for tax purposes, this is the tricky part.  Have you severed all ties to Canada?  Does Switzerland now consider you a permanent resident and are they taxing you on your world wide income?  That is usually the best way to know if you qualify to become a non resident for tax purposes. 

moustacheverte

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #809 on: April 03, 2020, 12:30:37 PM »
I have question about moving out of Canada and departure taxes on investments.

We moved out of Canada in the middle of last year to Switzerland. I know there is a departure tax to pay on our investments as if we had sold them at the date we moved out and instantly bought them back.

How is this calculated, and how to find an accountant that would understand how to file this properly?

Is there anything else I'm overlooking and that we're supposed to pay? We didn't own any house, car, or anything. Only mutual funds with Waterhouse.

And now that we've moved out, do we owe anything else to Canada if we were to sell all our Canadian investments, convert the money, and invest back with our Swiss broker?

Just use the value of the stock at either opening or closure on the day you left (just be consistent for all your holdings), and deduct your NBV from that.  That is your capital gain that you owe tax on.  What you are doing is A Deemed Disposition. 

You should only do a Deemed Disposition if you are becoming a non-resident for tax purposes, this is the tricky part.  Have you severed all ties to Canada?  Does Switzerland now consider you a permanent resident and are they taxing you on your world wide income?  That is usually the best way to know if you qualify to become a non resident for tax purposes.

So the formula is simply Market Value - Book Value for the day I left?

I am a resident of Switzerland now, I am taxed on my income there, although I still have bank accounts in Canada. But I'm not planning on returning to Canada for the foreseeable future. I guess that makes me a non-resident?

Any other pitfalls to watch out for, or is that really it?

FIRE Artist

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #810 on: April 03, 2020, 04:40:02 PM »
I have question about moving out of Canada and departure taxes on investments.

We moved out of Canada in the middle of last year to Switzerland. I know there is a departure tax to pay on our investments as if we had sold them at the date we moved out and instantly bought them back.

How is this calculated, and how to find an accountant that would understand how to file this properly?

Is there anything else I'm overlooking and that we're supposed to pay? We didn't own any house, car, or anything. Only mutual funds with Waterhouse.

And now that we've moved out, do we owe anything else to Canada if we were to sell all our Canadian investments, convert the money, and invest back with our Swiss broker?

Just use the value of the stock at either opening or closure on the day you left (just be consistent for all your holdings), and deduct your NBV from that.  That is your capital gain that you owe tax on.  What you are doing is A Deemed Disposition. 

You should only do a Deemed Disposition if you are becoming a non-resident for tax purposes, this is the tricky part.  Have you severed all ties to Canada?  Does Switzerland now consider you a permanent resident and are they taxing you on your world wide income?  That is usually the best way to know if you qualify to become a non resident for tax purposes.

So the formula is simply Market Value - Book Value for the day I left?

I am a resident of Switzerland now, I am taxed on my income there, although I still have bank accounts in Canada. But I'm not planning on returning to Canada for the foreseeable future. I guess that makes me a non-resident?

Any other pitfalls to watch out for, or is that really it?

Yes, that is right about the capital gains, there is a special form on your taxes to do the deemed disposition of all your assets.  When I did it I had investments and my townhouse which I switched to a rental property.  For the house I just used the city’s assessed value to declare the house value when I left.  When I returned to Canada, I sold that property and since I left right before the housing bubble burst, the valuation was at the peak, when I came back 9 years later and sold it, it was at a “loss” so I got to bank some capital loss.  I still laugh at that, I sold the house for twice what I paid for it, and got 30K of capital loss to bank from it. 

Being a resident of Switzerland is not necessarily enough to become a non tax resident of Canada.  The taxing your worldwide income is a huge factor to Canada.  I was an expat for many years, and when I lived in the UK, may first posting, I had a visa that allowed me to live and work in the UK, I paid into all their taxes, social security system etc, but the UK still considered me a “not ordinarily resident” person and did not tax me on my Canadian income (from investments, rental property etc).  Later on I moved to Indonesia, they DID consider me a full resident and I had to declare and pay taxes on my Canadian income in Indonesia, that is when I could finally become a non resident of Canada for tax purposes. 

So, in short, tax residency varies situation by situation, country by country, visa by visa.  There is a form you can work through to self assess your residency status.  I did this 15 years ago so things might have changed. 

I would think that if your living in Switzerland is not tied in any way to your employer, then you may well be good to go, but if you are on a work visa that is tied to a particular employer, or has a time limit, then you need to worry.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #811 on: Today at 12:00:42 PM »
"tied to a time limit" is a key, here.  Also, you can't choose to continue to pay into CPP/ EI or other Cdn taxes/ benefits while away.  (you can choose to do that if you intend to return).