The Financial Reality of Leaving Canada

One of the unfortunate parts of Canada’s electoral system is pretty much whichever party wins the election, more than half the population is going to end up unhappy.

When we sift through Monday’s election results, what we see is nearly 85% of total votes went to just two parties. The Liberals won with 43.7% of the popular vote, while the Conservatives were close behind with 41.3%. This means that approximately 6 out of 10 voters are unhappy with the result.

And this was one of the stronger mandates in recent memory, too. In 2021, for instance, Justin Trudeau’s Liberals received just 32.6% of the popular vote. That means that 7 out of 10 voters were unhappy with that result — plus many of the folks who didn’t bother to vote in the first place.

Combine that with this election being one of the more divisive ones in recent memory, and the result isn’t necessarily pretty. There are millions of Canadians who are downright pissed off with the result.

Inevitably, a small portion of these folks get vocal — usually on social media — and declare the country broken. Anyone who didn’t vote for their preferred candidate is a maroon, and secretly wants to see the country destroyed.

The most passionate few of the losing party might take it a step further. Many of them decide they’re going to leave the country forever and head to a place that is more accommodating to their beliefs.

While it’s therapeutic to threaten to leave, very few people actually do it.

The reason? It turns out it’s actually pretty difficult to leave Canada forever. First you’ve got to find another country that’ll have you, and then comes the long and expensive process to extract yourself financially.

Let’s take a closer look at that process, for those of you who decided you can’t stomach another minute here — but mostly for the simply curious. Just how difficult is it to leave Canada forever, anyway?

First, where to go?

Leaving Canada without first figuring out where you want to go is like quitting a job without another one lined up. It might feel good at the time, but generally isn’t a good idea.

The first step is to take an honest assessment of your skills and career. If you’re in a high-demand field or are legitimately one of the best at what you do, terrific. Just about every country will want you.

Certain careers will always be in demand as well. Many countries have a variety of English-speaking schools that are chronically short teachers. Just about every developed country on the planet needs more healthcare workers — especially skilled ones. Managers and finance professionals are wanted in the developing world, especially by companies who want to ensure their culture survives expansion to an entirely new market.

Unfortunately, most people reading this aren’t going to blow a country’s socks off. They have regular jobs that just aren’t in that high of demand. They might work in sales, or be an carpenter. Or maybe they’re a writer, real estate agent, or trucker. There’s nothing wrong with any of these professions — except when it comes to getting a country to welcome you with open arms.

The reality is most people will have to take one of two approaches to leaving Canada forever. They will either need to buy their way in, or skip around the world, never staying too long in one place.

Buying your way in is generally quite easy — provided you can afford it. This strategy is more popular in developing countries, who want to attract rich white retirees with money to spend. Depending on the country, the price tag is quite reasonable and the process is surprisingly quick.

Here are a few examples:

• In Panama, you can get a retirement visa if you earn US$1,000 per month in income

• Costa Rica has a similar visa with around the same income requirements

• Malaysia has a Second Home visa which allows an applicant to reside in the country for up to 20 years. It requires an investment in the country, usually property

• Portugal offers a D7 visa to people who generate at least 7,200 Euros per year in passive income, and who are willing to deposit 9,000 Euros into a Portuguese bank account

• Mauritius offers a Retired Non-Citizen visa for people 50 or older who have at least US$18,000 per year in passive income

There are dozens more. Lots of countries want that sweet, sweet retirement scratch. And a as a reader of Canadian Dividend Investing you’ll be a prime candidate for these. We’re oozing dividends around here.

Most countries also have some sort of investor visa, where you have to put a certain amount of dollars to work to get essentially the same thing. There are also dozens of these, all you’ve got to do is research them, pay the fees to apply, and then, once approved, make the investment.

You can also take the lazy way out and apply for a tourist visa. There’s a chance you’ll get busted if you’re making money in the country, but a lot of places don’t care — especially if it’s a remote job. You work for a Canadian company remotely, get tax taken off at the source, file a Canadian tax return, etc. Having your own business is similarly easy.

This method comes with a few advantages. You can pack up and leave when a country bores you. There’s no need to take the complicated journey of completely extracting yourself from Canada. It also lets you spend winters abroad while keeping the option open to spend summers back home.

But there are some big disadvantages, too. You won’t avoid Canadian taxes (unless you don’t file a return, which isn’t recommended). That’s a big problem for those looking to leave because taxes are too high. There’s also the chance you get in trouble with either your employer here or the government there for working on a tourist visa. And the nomad life isn’t for everyone; most people like having a home base, friends nearby, and a comfortable routine.

The easy part is deciding where to go. The hard part is severing financial ties to Canada, a process that will likely be long, cost five-figures in taxes and costs (at least), and requires some pretty big sacrifices. Let’s take a closer look.

Financially leaving

Physically leaving the country is hard enough. You’ll have to sell any property (or arrange for a renter and a property manager to take care of the place), get rid of most of your things, and a million other annoying little jobs. It’ll also cost a ton of money in Realtor fees, money spent to spruce up the house for sale, potentially selling your car for less than market price, and you’ll hate the part where you sell your furniture for about 10 cents on the dollar.

But that’s the easy part. The hard part is financially separating from Canada.

You can’t simply throw up your hands and decide you’re moving. Well, you can, but that only solves a few problems. If you decide to live in Mexico and still have substantial financial ties to Canada, as far as the CRA is concerned you’re still a taxpayer.

Here’s the process to financially extract yourself from Canada:

1. Physically move to the new country

2. Break all financial ties to Canada — this includes closing bank accounts, selling your home, and cancelling subscriptions to Canadian services

3. Notify the CRA by completing and filing form NR73

4. File your final tax return

5. Pay the departure tax

   a) This assumes all your investments are sold and is essentially a tax on any capital gains you’ve realized on your assets before leaving

6. Either liquidate your RRSP immediately or defer that until you’re older. RRSP withdrawals for non-residents are subject to a 25% withholding tax, but depending on the country you’ve moved to, this may be offset by tax credits there

We’ll note that a former Canadian can still maintain a TFSA in Canada and allow it to grow on a tax free basis. However, they can make no contributions and may have to pay tax on withdrawals in their new country. The United States, for instance, doesn’t recognize the TFSA’s tax free status, and will make you pay taxes on that income.

There are also rules in place for keeping shares in a Canadian corporation, or keeping a rental property, or a million other things you might have to consider. We won’t get into the specifics of those, just realize that the more financial stuff you have in Canada, the more complicated it is to leave. All those things have to be resolved to the CRA’s liking before you can say adios.

It is possible to do all this yourself, but the far easier way to do it is to pay someone to prepare all these documents. There are accountants that specialize in this, and they’re happy to do all the paperwork.

Essentially, what happens is this. Most folks do some rough math, figure out that they’ll owe $100,000 (or more) upon leaving the country, and then throw up their hands. This is especially true if someone is leaving because they feel like they’re paying too much tax. The last thing that person wants to do is pay more tax on their way out.

And so, we have a stalemate. People want to leave, but nobody wants to pay the tax.

A possible solution

Here’s my advice to someone looking to leave Canada forever.

Do it gradually.

Let’s face it; many of the folks looking to leave are people who are already successful and who don’t want their income taxed at upper tax bracket rates. They see a country with a 10% flat tax and compare it to their tax bill, and the choice is pretty clear. A potential five-figure (or even higher) tax savings await.

By leaving the country gradually, you’ll spread a potential massive tax bill over a number of years as you liquidate investments, use capital losses to offset capital gains, and withdraw from your RRSP at lower tax rates. You can also plan your salary to do some of these things in low income years.

Plus, doing it gradually comes with a nice built-in cooling off period. If you’re smarting from your preferred candidate losing the election, it makes sense to not make any rash decisions. Maybe the other guy will do better than you anticipate. Or maybe you’ll embrace a more cynical attitude and discover that it doesn’t really matter what ruling party is in charge.

I would also suggest you try before you buy. Spending an extended period in a new country before you decide to move there forever is massively beneficial. Rent an AirBnb, settle into the community, and truly live like a local. You might discover it’s not all it’s cracked up to be. Or you might figure out it’s only Canada’s crummy winters you want to avoid.

The bottom line

The point is this — leaving Canada forever is difficult. It’ll cost you thousands in fees, months of aggravations, and then, when that’s all said and done, massive departure taxes.

It’s definitely not something you decide to do simply because your preferred candidate just lost an election.

Take your time, think about it, and only then make a decision. There are a million things that can possibly go wrong, but also a bunch that can go right. It could make sense for you, or you could take a slightly different approach and winter abroad — or something similar.

Personally, I think Canada is a wonderful place to live. Sure, we have problems, but they pale in comparison to other countries. We have honest politicians, rule of law, plenty of jobs, property rights, and one of the planet’s better social safety nets. We aren’t perfect, but newsflash, neither is anywhere else.

The grass might be greener on the other side of the fence. But it probably isn’t.

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