Some Canadians have moved to other provinces during the pandemic for work, retirement, or cheaper lifestyle reasons. As others consider doing the same, financial advisors with clients in that position need to remind them that there are several financial considerations they need to keep in mind.
A recent RBC Economics report found a record number of Canadians relocated to Atlantic Canada this year, with the majority settling in Nova Scotia or New Brunswick. Yet, some clients don’t realize the tax consequences of making such a move.
Jamie Golombek, managing director, tax and estate planning, at CIBC Private Wealth, points out that provinces have different income tax rates. For example, the marginal tax rate for the highest-income earners in Nova Scotia is 54 per cent compared with 48 per cent in Alberta.
“The maximum spread between the provinces isn’t generally a huge deal, but if your income is high, it could be a significant difference,” Mr. Golombek says.
Because the tax rates vary, he says advisors should remind clients to consider the timing when looking to relocate to a different province. Ultimately, a person’s income taxes are determined by what province they reside in on Dec. 31.
If a client is moving to a lower-tax province like Alberta from, say, Ontario, relocating before Dec. 31 is the best strategy. “Then, you would pay taxes on the full year’s income at the Alberta rate,” he says.
The opposite strategy holds true for clients moving to a higher-tax-rate province.
“You want to delay that move until Jan. 1 or later,” Mr. Golombek says, “because the higher tax rates you would face in that province would be deferred until the following taxation year.”
Provincial sales taxes and HST/GST also vary in every province. While the differences are small, it’s something for clients to consider when deciding where to make any big-ticket purchases, Mr. Golombek says.
Of all the provinces, Quebec has the most differences. For example, Quebec residents must file a separate provincial tax return, he says.
Another tax-related consideration that advisors should remind clients of when moving provinces is that expenses related to the move are valuable deductions on their taxes. Clients can write off everything from packing, hauling, transit storage insurance, travel expenses, and even temporary living expenses. The first step is ensuring the clients qualify for the moving expense deduction.
“You have to be moving to earn income for work, for running a business, or while a full-time student,” Mr. Golombek says. “You also have to move at least 40 kilometres closer to your new place of employment or school.”
What else to consider when moving
Jason Pereira, partner and senior financial consultant at Woodgate Financial Inc., a financial planning firm under the IPC Securities Corp. umbrella in Toronto, has found his clients’ moves to other provinces were mainly retirement or work-driven. Besides tax concerns, he also brought up elder care issues with retired clients.
“We talk about what happens when they get older and can’t take care of themselves. If their entire support system is in a different province, they can’t assume their family is going to drop everything and move to a different province to take care of them,” he says.
“It’s about having people in your life who can help navigate the system and ensure that they get the care they need,” Mr. Pereira adds.
Proximity to a hospital and access to specialists rate highly among his retired clientele when making a decision to move provinces.
Many estate planning considerations come up as well. As Mr. Pereira points out, a will set up in one province may not be as effective in another province that has a different set of estate laws.
Mr. Golombek says clients who are relocating should have a lawyer in their new province review their wills to make sure they understand any nuances.
For example, the provincial rules about dying without a will and how an estate is divided among the spouse and children vary greatly. Probate fees on estates are also over the map. Quebec doesn’t have probate fees at all, Alberta has a flat fee, and Ontario, British Columbia, and Nova Scotia have higher probate fees.
“If you lived in Alberta, maybe you never did any planning around probate. Maybe you were worried about making sure all your beneficiary designations were up to date and didn’t think about setting up things like joint accounts or trusts,” he says. “But all of a sudden you move to a higher probate province like Ontario and there’s a whole area of planning to minimize the amount of Ontario’s estate administration tax.”
Cathie Hurlburt, senior financial planner at Assante Financial Management Ltd. in Vancouver, cautions clients looking to relocate to examine their principal residence deduction.
For example, some of her clients may have ideas of renting out their principal home in Vancouver while they live in another province and buy another home there.
“You can only have one principal residence exemption and it only works while you live in it,” she says. “If you’re not careful you may end up turning your [Vancouver] house into a taxable asset.”