| By Pervez Patel and John Wright |
As job losses mount worldwide, Canadian expatriates must consider
practical issues relating to health care, taxation, asset structuring and
repatriation of goods.
The synchronized economic decline in the last 18 months has occurred
with such speed and severity that mounting job losses are now an issue
worldwide. And conditions could become worse on the back of a deteriorating
global economy.
To put things in perspective, during the great depression job losses
peaked at 25%. Comparatively, job losses in most major developed nations
are currently approaching 10%.
The common adage that the world is flat (it is probably the flattest
when it comes to the global financial sector) was never more apparent than
in 2008. Economies of both developed and developing nations witnessed the
destruction of consumption demand, which will most likely lead to the first
contraction in global trade in the last 20 years.
Particularly hard hit in the global downturn are economies that are
heavily dependent on global trade, such as Singapore, whose port in recent
years grew to become one of the major transhipment centres in the world,
and its Middle East counterpart, Dubai.
For instance, a recent survey by the market research firm, YouGov Siraj
in UAE revealed that 50% of respondents are concerned that they will lose
their jobs. On the other side of the globe in Singapore, Credit Suisse
estimates that hundreds of thousands of expatriates have lost their jobs.
As planners we find ourselves sitting down with an increasing number of
Canadians who are returning to the perceived safety of Canada, either due
to job loss or early retirement. Some individuals have chosen to “pack it
in for a while” and live in a low cost jurisdiction while they consider
their future options.
As well, some Canadian expatriates have made up their minds not to
retire in a cold country and have opted for warmer tax havens like Panama,
Mexico, and Costa Rica in Latin America, or Malaysia and Singapore in the
Far East. Very often, such choice involves a serious reconsideration of
their financial and retirement goals, given their individual circumstances.
It is anticipated that the current credit crisis could last for a number
of years. If your life has been thrown into disarray or your circumstances
have changed, it is prudent for you to seek help to re-organize your
affairs. We’d be willing to provide any assistance you require and have
outlined some practical issues on health care, taxation, asset structuring
and repatriation of goods for you to consider.
Repatriation to Canada
We have discussed this subject in detail through numerous articles in
the past. If you plan to return to Canada please contact us and we will
send you forward our repatriation guide to Canada.
One example of this would be the apportionment of assets between spouses
since the attribution rules do not apply while you are overseas.
Another example would be consideration of how an existing portfolio of
investments would be taxed in Canada. Different tax rules apply for
offshore versus Canadian financial assets.
It would be wise for you to ensure that any terminal package that your
employment entitles you to should be obtained before your arrival in
Canada. This is because the Canada Revenue Agency takes the view that an
employment benefit accrued or received once you take up residence is
taxable in Canada.
On your return home, you again become eligible for a much wider span of
investment products, particularly from insurance companies that provide for
forms of guaranteed income that you may wish to consider.
Local Semi-Retirement
If you choose to stay in a country other than Canada to either
semi-retire or wait out the storm, please keep in mind that you will need
to look after all the items your firm may have previously taken care of.
The following list is not exhaustive but covers the common gaps that we
see.
1. Medicare.
You are typically on your own now and will need to investigate the cost
of medicare. There are a number of companies which provide private medicare
to Canadians worldwide such as IMG, BUPA and Norfolk in Calgary.
2. Estate
If you take up residency in another jurisdiction and hold assets there
such as a home, investments, etc you will need to investigate applicability
of your current will. Typically, the law where you are domiciled (habitate)
takes precedence over “other” wills, and it is wise to ensure that a
Canadian will is applicable in a foreign regime.
3. Pensions
If you have no other source of income it may be advantageous for you to
initiate your Canadian based pensions and/or withdraw funds from your RRSPs
or LRSPs. As a non-resident with no other source of worldwide income you
may be eligible to file a Section 217 election and withdraw $10,000 to
$17,000 per year without paying any tax. You may also succeed in some
Provincial jurisdictions in unlocking a locked-in RRSP or LIRA.
Settlement Packages
Canadian expatriates can often find themselves in a tenuous circumstance
when it comes to settlement packages. Your firm may claim that local law
takes precedence when this is not always the case. You would be wise to
seek Canadian legal counsel as in certain circumstances the rules
surrounding Canadian severance take precedence.
For instance, it was a pleasure to work with a client a number of years
ago who was let go from his firm due to global downsizing of their
expatriate staff. The firm had a head office in a tax haven. The client was
located in another jurisdiction and was returning to Canada. His Canadian
legal counsel successfully argued that Canadian severance rules and case law
took precedence. As a result the client received a much larger exit package
than was originally offered. Keep in mind that the actual settlements can
vary for the two categories of accrued pension and time served.
Pension Assets
We often meet with Canadians who have spent their entire career abroad
and find themselves with a collection of pensions in various jurisdictions.
In certain circumstances these pensions may qualify for a full transfer
into a Canadian based plan such as an RRSP. The rules surrounding these
transfers are rather complex and vary depending upon the tax treaty Canada
has in place with the pension jurisdiction in question.
This is becoming increasingly common as Canadians working in the USA
return to Canada and plan to move their US pension assets to Canada. The
exchange rate is currently favorable which makes this proposition even more
attractive.
The Silver Lining
As you can imagine, the havoc wreaked on financial markets has been
quite phenomenal. Your retirement portfolio might have been negatively
impacted, with obvious repercussions on your planned lifestyle during
retirement. Whether or not you can now afford retirement comes to fore.
There are however two major opportunities that these trying times present.
Firstly, for anyone in an acquisition mode – be it for real estate or
for applying the proceeds of a retirement package towards a structured
portfolio – you can definitely take advantage of some excellent bargain
basement prices.
Secondly, for those who have savings or retirement packages in U.S.
dollars or in other currencies (like most in the Far East) that are
irrevocably linked to the U.S. dollar, the savings converted to most other
major currencies, including the Canadian dollar would amount to a lot more.
As a commodity-linked currency, the Canadian dollar is quite literally more
than 20% lower than what it was at the start of 2008. With most currency
gurus suggesting that the Canadian dollar is grossly undervalued presently
(Canada is after all the strongest economy in the G7), a unique opportunity
presents itself to take advantage of current Canadian dollar weakness that
may not persist.
| Pervez Patel and John Wright – are International Financial Planners who have been working with Canadian expatriates for over 12 years.
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