Global News Radio – Moving south of the border & the RRSP

We are very pleased to share that our President and CEO was recently interviewed by Global News Radio CHQR 770 in Calgary for their “More Than Money” show which aired on March 17, 2018. “More Than Money” looked to Matt Altro as a Cross Border Financial Planner for insight on how non-residents of Canada (ie. Canadians moving to the US) benefit from being able to withdraw their RRSPs at much lower rates than Canadian residents.

To listen to the interview please use the media player below or follow this link to the Global News Radio CHQR media player.

Below is a transcript of the interview which aired on March 17, 2018 on Global News Radio CHQR 770 in Calgary.

Host (Dave): Welcome back here on 770 CHQR and More Than Money. You know Faisal, we talk about taxes, we talk about after-tax income, we talk about travel, we talk about all these things, is there a way that we can combine everything into one?

Host (Faisal): Go for it. Good luck my friend!

Host (Dave): Alright, we’ve got Matt Altro, he’s the President & CEO of MCA Cross Border Advisors, and Matt’s going to talk to us a bit about how spending more time in the US during your retirement might actually benefit you from this perspective. So an interesting article, Matt, first of all welcome to the show.

Matt: Thanks for having me.

Host (Dave): So, let’s talk a little bit about this. You know we read an interesting article and there’s a number of points you put forward but I want you to walk us through how spending more time in the US, your thesis here, can actually be a benefit to Canadian retirees.

Matt: Ok great. Yeah, its kind of interesting so many of our Canadians, especially this time of year, are hiding down south because of weather, getting in the Sun Belt – Florida, Arizona, California, all beautiful places to be. But they can only spend about six months per year down there before you run into problems with US immigration or the IRS from US tax point of view, and so most Canadians are kind of counting their days and wishing they could spend more. Its interesting to note that if you are able to achieve an immigration strategy to allow you to do that, and I’ll talk about that in a minute, you can actually find ways to save money in retirement. And that’s because we all know that in Canada we’re famous for hockey and for taxes! We pay a lot of tax up in Canada, and in some provinces up to 54% or 53%, in Alberta it used to be the lowest I know its gone up quite a bit more recently in the mid to high forties. So a retiree is looking at a pretty high rate of tax in retirement. What’s interesting to note is that when it comes to your RRSP you could actually withdraw your RRSP at a much lower rate if you were a non-resident. And what I mean by that is, for an RRSP its always a great plan to contribute and you get a big tax deduction and its grows tax deferred, but when you take the money out as you guys know, you pay tax at your marginal rate. So high forties or whatever it is for high net worth clients. As a non-resident of [Canada] if you’re able to achieve that status, you can actually withdraw it at a much lower rate. Canada will let you take it out at 25 or even 15% tax.

Host (Dave): So as a non-resident of Canada, you’re saying?

Matt: Yeah, you’ve got to be a non-resident of Canada. That’s from a tax perspective, so in order to do that you’re basically going to have an immigration strategy to allow you to become a non-resident and you know there’s three basic ways that Canadians are able to spend more time in the US getting either a visa or green card, and those three routes are either: family-based options, maybe they’ve got a US citizen who’s an immediate relative, or maybe its an employer who’s transferring them or got a job down in the US, or investor category, some people who are retirees want to invest and you can become a passive investor in certain investments and get a green card. So, if you’re able to achieve one of those kind of immigration routes, and for the retirees its probably more for the family or investor-based, then you can start spending eight or nine months in the US and still have your four months back in Alberta to enjoy your family during the summers. But then you’re not a tax resident anymore in Canada, and if you’re not a tax resident anymore, then you don’t pay tax to Canada on your worldwide income. So, whether ongoing income you don’t pay tax to Canada, you only pay to the US and then with the RRSPs, as I mentioned, you now have a much lower withdrawal rate when you withdraw the money.

Host (Faisal): Can I just jump in there to ask a couple questions. When you talk about that 25% tax rate being a non-resident. There’s a certain type of individual, or wealth or income, that an individual has when they’re in retirement, receiving more than a 25% average tax rate. So can you give us an idea who’s this targeted for? I don’t think it’s the average person, do you? Or do you think every Canadian should look at this?

Matt: Well you know, first and foremost you want to do this type of plan if you really do want to spend, first of all, more time down there. You want to have that motivation to just, if you’re a snowbird and you’re counting your days and you’re wishing you could do eight months, that’s got to be the primary motivating factor. The sweetener is the tax savings and its definitely there. So you know, who’s going to get the best tax savings? You’re right, in a sense Faisal, its going to be the higher income earners because the higher your income is, the higher the rate of tax, and the more tax savings there is on the US side. On ongoing income, you know, there’s tax savings all the way up the graduated tax rates in the US versus Canada. So, you know, in the case of the 25% average tax like you just mentioned, as I said earlier, Canada will let you take out your RRSP at a lower rate either 25 and there’s a way to get it down to 15%, so you know 15% versus 25% even that person is going to have savings but when you’re up at the high forties then the savings become very astronomical. If a couples got a million dollars in RRSPs between the two of them, you’re looking at almost 30-35% savings on that income when you take it out in retirement. And here’s another one, everybody’s familiar with the OAS, Old Age Security, and if you’re not familiar: that’s the pension that Canada gives when you turn age 65 if you’ve been a resident for most of your life. You get old age security, which is about $7,000 per year, so let’s say $14,000 per couple. High income earners, unfortunately, do not get to keep any of that because of this thing called OAS clawback, and I know you guys are well aware of it, so a lot of your wealthy clients never see a penny of the OAS.

Hosts: Yes.

Matt: And it bothers them. It irks people. It just sounds bad – clawback. So, the interesting thing again, is as a non-resident, if you’re no longer a resident of Canada, you still get your OAS if you’re eligible for it and there’s no clawback even if you’re a high income earner.

Host: Ok and there’s some differences, so if anybody’s interested in this you’ve got to get proper tax advise, for sure, and you know, Matt, I’m sure you’d agree with that, because different states have different tax rules too. Like in California, if you’re going to end up down there, California could be a punitive tax rate versus say in Arizona or Montana or something along those lines, so there’s some complications but its an interesting approach to thinking about how to liquidate RRSPs for those people who have significant wealth.

Matt: Absolutely, there’s some more technicalities into how the US will tax it, I was talking about the Canadian rates, and what’s really fantastic though, without trying to get too complicated, is that the US side, and the reason I didn’t go into it in too much detail is because the US side, what they do is if you have the million dollars, let’s say you’re not a US person; you’re a Canadian resident, Canadian citizen, and you move and you have a million dollar RRSP. You cross the border, and then you start to withdraw it. The IRS will not tax you. You get a bump-up. They will not tax you on the capital, on the total amount of that million of that amount when you came in, when you crossed into the US. Its only the growth thereafter that they want to take some tax from. And because you’re going to pay tax to Canada, and you’re going to have foreign tax credits, you’re going to be able to offset any US tax owing on any of the growth. So, the reason I kind of just didn’t go into the detail, is because at the net-net-net, you actually still only pay the 25 or 15% to Canada, so it is fantastic. But I really like that you mentioned California, because they have, they’re nasty when it comes to tax, beautiful place to live, but from a tax perspective they’re not friendly. They have the highest rate of state tax, as you mentioned, and here’s something else: they do not respect the Canada-US Tax Treaty, which is such an important tool in all of the planning we do when Canadians move there. And it hurts a little bit on the RRSP because we all know RRSP is tax deferred income, and you don’t get taxed while its in there. Well, CRA does that, the IRS will also grant you the deferral while you’re in the US and you have your RRSP, but California does not. So, while you’re leaving money in your RRSP, which of course you will for some time while you’re in the US, California will tax you on the ongoing income as a regular or non-registered account. It’s a very good point you raised, there’s a lot of complexities to these things, and this is just one issue guys. This is the real fun one where you save a lot of money on the RRSP, but there’s other issues when you want to move to the US, like departure tax, that’s another big one.

Host: Yeah, that’s right. We can’t do justice to the complexity, but I like the fact that you’ve raised this and it’s an interesting avenue to explore for those that might work with Matt. But we’ve run out of time, so we’re going to have to say goodbye at this point, but I appreciate you taking some time with us today.

Matt: Thanks for having me on guys.

Host: Matt Altro is the President & CEO of MCA Cross Border Advisors.

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