The travails of long-term travel

Larry Berdugo, president of Wealthmore Strategies Inc., suggests clients travelling for long periods should set up a broadly diversified portfolio that would weather volatile markets. “They should probably ensure they have a good grasp on their long-term level of risk and investment objectives and design a portfolio in accordance with those goals.”

If the portfolio requires ongoing monitoring and decision-making, Berdugo advises clients to draft a power of attorney specific to investment management. For those who are considering taking up U.S. residency, prudence and caution should be part of the financial game plan.

Under the Canada-U.S. tax treaty, any income received from the Canada Pension Plan (CPP) or Old Age Security (OAS) by a resident of the U.S. is exempt from Canadian taxation.

However, the person must include the CPP and OAS income on his or her U.S. return and pay taxes on that income. Plus, there’s Canadian health-care coverage: each province and territory is responsible for determining its own minimum residence requirements with respect to an individual’s eligibility for benefits under its health insurance plan.

If undecided about giving up Canadian residency status, don’t run out and cash in RRSPs or RRIFs. If you make a significant withdrawal from your plan while still a resident in Canada, you’ll face tax at a rate as high as 46 per cent.

“If a taxpayer has significant accrued gains in non-RRSP and/or non-pension investments, it could result in a tax liability if the individual becomes a non-resident,” says Arun (Ernie) Nagratha, a tax adviser for Toronto-based Trowbridge Professional Corporation (

If you make those withdrawals after you’ve become a resident of the United States, you’ll only pay a withholding tax of 25 per cent to the Canada Revenue Agency. Periodic withdrawals can reduce this tax burden to just 15 per cent.

Residency also affects the tax liability of Canadian participants in the Canada Revenue Agency’s Home Buyers’ Plan or Lifelong Learning Plan ( government programs. The unpaid balance will be included as income on your Canadian Income tax return for the year of your departure. Try to repay the outstanding amount within two months of becoming a non-resident.

Also, if one is thinking of selling a Canadian principal residence, in certain circumstances, it is best to do so before taking up residence in the United States. That way, the full principal residence exemption can be realized.

“As a non-resident, you are not able to claim the principal residence exemption for the years you are not a tax resident of Canada,” says Ernie Nagratha. As for the Wilsons, to avoid a repeat of the big headaches of the past, they’re paying a little more attention to the small things. This includes keeping receipts to demonstrate residency periods in Canada.

“I keep the Visa bills, and if they come back and take a look, they’re here for six years. We make a point specifically on the day we leave to buy something on Visa and the day we come back we buy something on Visa,” says David Wilson.