Canada is a nation on the move. For the past decade, corporate restructuring has sent downsized employees scrambling for jobs across the country. Currently, the oil and gas boom, and a shortage of skilled workers in the construction and trades sector is bringing job seekers to western Canada. And many retirees relocate to Canada’s west coast when they leave the workforce to escape harsh winters in other parts of the country.
Some of your clients may be contemplating a major move. You will provide a valuable service to those who are by having them consider all the financial and lifestyle implications of relocating to a different part of Canada.
The first consideration is the cost of housing in the new location, said Myron Knodel, director of tax and estate planning at Investors Group in Winnipeg. “Clients may have to pay more for a dwelling and they may not be able to get a mortgage at the same interest rate as they have now. They also risk a housing market correction in the near future. If they are moving for employment, they will need to consider how stable the job is, and if there are other employment opportunities in the area. Will the spouse be able to find work in the area? And what impact will the move have on the children’s education?”
When clients sell their homes to take jobs elsewhere, noted Cara Williams, associate partner, tax, at PricewaterhouseCoopers LLP in Vancouver, real estate fees, legal costs and land transfer tax can be claimed against employment income earned in the year of the move or in the subsequent year if they are moving to be at least 40 km closer to a new work location.
If the bills for the actual move are not picked up by the new employer, they are also tax-deductible. “These costs include packing and moving belongings, personal transportation and up to 15 days temporary living accommodation in the new location,” Ms. Williams said.” And the legal fees incurred in purchasing a new home, the cost of cancelling utilities and signing up with utility companies in the new location, and the cost of changing legal documents to show a new address can also be claimed against employment income.”
Deductible costs
Mortgage interest costs on the present home are deductible against income in the new location for the period when the home is up for sale, Mr. Knodel added. “But if the new home costs more than the current home, the added cost can’t be claimed at income tax time because a home is considered a personal asset. But the client may be able to negotiate compensation for the difference with the new employer.”
The client’s income will be taxed for the entire year at the rates of the province in which he or she resides on Dec. 31. “Depending on where he is moving, this may or may not be advantageous,” Mr. Knodel said. “Ontario’s rate, for example, is higher than Alberta’s. So he may want to delay or accelerate his change of residence accordingly.”There are hidden costs to a move outside the province. “Land transfer tax, annual property tax and property insurance are higher in some parts of the country than others,” said Jack Courtney, Investors Group’s Winnipeg-based assistant vice president, advanced financial planning. “In Alberta, land transfer tax is $50 plus .02% of the purchase price of the property, whereas in British Columbia is it 2% on properties valued at $200,000 or more. And there is province-specific sales tax on the cost of having a home built.”
And there are hidden costs to some provincial health plans, Mr. Courtney added. Three provinces – British Columbia, Ontario and Quebec – require residents over a certain income level to pay medical premiums. In British Columbia, for example, this starts at annual family incomes of $22,000; the full rate kicks in at family incomes of $30,000 when a family of three or more will pay $1,536 a year, a family of two will pay $1,392 and a single person will pay $768. B.C. residents are invoiced monthly, whereas Ontario and Quebec residents pay an annual premium when they file their income tax returns.
Mr. Knodel said clients should also look into the cost of living where they intend to live. Some areas have significantly higher grocery prices. “And what is the provincial sales tax rate?” he asked. “Here in Manitoba it’s 7%, whereas Alberta has no provincial sales tax.” “And check out public transportation,” he added. “If it’s not good, will your client have to buy a car to get to work or for his spouse? And is there a local tax on vehicles?”
Relocating in retirement
It may be tempting to relocate to a milder climate upon retirement, but Mr. Courtney cautioned that older people should be cautious about moving far away from family and friends. “Is it really practical to leave these support groups? Clients may want to move back again when a move may be much more difficult to undertake,” he said.
Robert Grose, executive consultant at Investors Group’s regional office in Nanaimo, B.C., said some retirees do the opposite – and move to be closer to their children and grandchildren. “I think that’s a mistake,” he said, “because the kids could very well move again.”
Older clients will need to determine how close they will be to a hospital and medical specialists before they move, Ms. Williams said, and whether health-care practitioners in the area are available to take them as patients.
“Why not test the waters by living in the area on a temporary basis for a while?” she asked.
Mr. Knodel noted that clients who rent out their current homes while checking out a new community can claim mortgage interest, property insurance, property taxes and maintenance fees as a business expense on a rental property. “But they will have to report the rental income they receive on their income tax returns.”
Mr. Courtney said he would advise older clients to think things through carefully before relinquishing the family home. “The home has probably gone up in value since it was purchased, and there will be no capital gains tax because it is the principal residence. But how much will it cost to buy a home in the new location? And what is the cost of recreational activities such as golf in the new area?”
Clients who are still working may consider looking for a job in the new location, he added, in order to subsidize the cost of the move.
Mr. Grose noted that British Columbia is the only Canadian province where residents age 55 and older can defer residential property taxes until they sell or refinance the home. He tells his clients to take advantage of the program. “I suggest they use the money they are deferring on something they will enjoy, such as a golf club membership or travel, so that when they do pay it back they’ll feel good about what they spent it on. And because their home has probably appreciated in value over the years, their payback will be made with tax-free dollars.”
Older clients should also look at the cost of long-term care in the province where they are relocating, Mr. Courtney noted. Long-term-care homes are funded by both the provincial government and the resident, who pays a standard rate which differs in each province. “Down the road, one spouse may have to go into long-term care, while the other spouse will still be at home. Can they afford this arrangement?”
Mr. Grose suggested that advisors try to line up clients who are moving out of the province with a financial advisor in the new location. “This will be a big help in the transition,” he said. “Before they leave, remind them to review their wills and power of attorney documents with the new advisor to make certain they are compliant with that province’s legislation.”
