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One advisor says he has noticed significant interest from his snowbird clients in travelling south this winter.kate monakhova/iStockPhoto / Getty Images

After a winter spent away from sunnier climates, many fully vaccinated snowbirds are set to make the trip south to their vacation properties this year. But with the Delta variant surging in different parts of North America, some property owners are weighing their options and consulting their advisors as to the best way forward, especially with the U.S. land border reopening to Canadians on Nov. 8.

A survey conducted in June by Snowbird Advisor found that 91 per cent of snowbirds intend to travel south this winter and two-thirds of them plan to spend more than three months outside of Canada. (A similar survey conducted last November found that only 30 per cent of snowbirds had definite travel plans last winter.)

Advisors say this eagerness to travel to warmer climates in the winter is evident among their clients – but there’s an element of the snowbird population that’s taking a “wait-and-see” approach as well as some who are planning actively for a more uncertain future.

“The biggest issue right now is that everybody’s uncertain as to what to do,” says Russ Keil, senior wealth advisor with the Keil Financial Advisory Group at ScotiaMcLeod in Comox, B.C.

While one of Mr. Keil’s clients is an avid golfer who is planning to travel to his property “no matter what it takes,” one client couple recently mentioned that they’re considering selling their snowbird property.

“It’s just starting to become too much of a headache, but I don’t know if that’s a reaction just to the way things are currently or if they’re losing confidence that that’s going to change,” he says.

During the pandemic, the biggest hurdle for snowbird clients who own property has been the restrictions affecting their ability to travel to and access their property, either for leisure or rental business purposes, says Claudio Chisani, portfolio manager and investment advisor with BlueShore Financial in North Vancouver.

“If the property’s not for personal use and [the client relies on] rental income and revenue for cash flow, well, we all know that income stream would have been significantly diminished,” he says. “[These people have] found themselves questioning the viability or long-term advantages and disadvantages of home ownership down south.”

As such, Mr. Chisani says he and his colleagues are noticing a trend toward selling these homes, not only among clients who find travelling to their properties increasingly inconvenient due to COVID-19 protocols or the hassle of flying but also among clients with age-related health concerns unloading their vacation properties sooner than planned.

For many, the rise in vacation property values over the past few years has also made the decision to sell easier.

“If you don’t want to take on the complexity of tax and insurance and hopping on a flight, chances are you’ll realize that gain, or at least you’ll liquidate that property and deploy the money back in an investment portfolio or buy something back in Canada,” Mr. Chisani says.

Conversely, Terry Ritchie, vice-president and private wealth manager at Cardinal Point Wealth Management LLC in Calgary has noticed significant interest from his snowbird clients in travelling south this year despite the remaining hurdles.

“The majority of the clients that can [manage the travel] from a lifestyle perspective and financially will continue to [head] down [south]. I haven’t had any clients or any people call me and say, ‘Listen, because of the pandemic, I think this is a good time to sell my house,’” he says.

For those snowbirds who do decide to either rent out or sell U.S. properties, he says, the tax and currency considerations on both sides of the border can be complex.

For example, when selling a property, the U.S. Internal Revenue Service requires snowbirds to obtain an individual taxpayer identification number (ITIN) and file a tax return via Form 1040-NR by June 15 to report a taxable gain or loss.

Foreign owners of U.S. property are also subject to a default withholding tax of 15 per cent of the gross sales price, with reductions applying in certain circumstances. The seller can eventually recover excess taxes paid when they file their return reconciling the sale, Mr. Ritchie says.

The process can be lengthy, he advises clients – especially obtaining an ITIN or filing a Form 8288-B to ask for a reduction in the level of withholding taxes.

Snowbirds also have to reconcile the proceeds in Canadian dollars at the time of sale, he says. “You may have a loss for U.S. purposes, but a gain for Canadian purposes, so you have to pick up that gain and pay taxes in Canada on that, and that can be a bit of a surprise.”

Ultimately, concerned snowbird clients will benefit from having an in-depth discussion with their advisors to look at every option and take a strategic approach, Mr. Chisani says.

“We have to rework the financial plan, the numbers, the projections, and see if we decide to defer the selling for three or four years if that’s viable. If it’s not viable and they need liquidity right away, we’ll have to act in that manner and then they may have to sell from a distance,” he says.

“If we allow ourselves many options, perhaps you can navigate the situation at the border for another six to 12 months and see what 2022 will bring,” Mr. Chisani adds.

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