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Posts Tagged ‘Canada vs USA’

So what should you do with your RRSP if you leave Canada? The simple answer is you can keep your RRSP as is.  However, if you want to access the funds in the future there will be a 25% tax withholding, this amount is considered your tax paid. If you are happy with this you don’t need to do anything further.

If you believe your tax payable should be less than 25%, you can elect to file Canadian taxes and the difference would be refunded.  Keep in mind that for RRSPs the amount you redeem is considered income for that year, which means unless you have a small RRSP and no other sources of income, your income tax payable for the amount is not likely to be less than 25% .  You may also need to report the amount redeemed as part of your income in your new country as per that country’s income declaration requirements.

If you are certain ahead of time that your income tax payable would be less than 25% you can fill out Form NR5, Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld. This will reduce your withholding before the redemption even occurs.  This process isn’t any easier than filling out taxes, but it only needs to be done every 5 years so it will save you needing to fill out taxes each year if you are doing multiple redemptions.

Another option is to convert your RRSP to a Registered Retirement Income Fund (RRIF) and receive regular payments from the accounts.  The same minimum withdrawal requirements apply for RRIFs as they do with RRSPs and the 25% withholding tax also applies to all payments (unless your country of residence has specific tax treaties).  A reduced tax withholding amount of 15% is possible for US-Canada. This reduction applies if the payment is less than the greater of 10% of fair market value or twice the minimum withdrawal requirement (amount of withdrawal < greater [10% of FMV, 2x RRIF minimum withdrawal]).  A preferential NOTA BENE rate can be acquired but only if redemption is scheduled for regular periods.

As an example, suppose you have a $100,000 RRSP (as of December 31, fair market value) which has now been converted to a RRIF, you are currently 65 years and you want to make withdrawals.

The minimum required for RRIF withdrawal for the year is 4% or $4000.  You would like to withdraw $12,000 a year or $1000/mon.

Under standard non-resident rules you will receive $750/mon with 25% tax withheld.

If you are in the US, to get the reduced rate: 10% of FMV is $10,000  and twice the minimum withdrawal is $8000. The greater of the two is $10,000.  This means the first $10,000 of redemption is tax withheld at 15% and the excess amount is tax withheld at 25%

So for our example, the first 10 months you will received $850/mon and the last two months  you will receive $750/mon.

If you are in the UK such periodic payments should not be subject to any withholding.

If you are thinking of withdrawing from your RRSP I would strongly suggest you research your own country’s tax treaty and discuss it with your institution before proceeding.  They may still want to withhold 25% and let you deal with CRA to claim any amount that was taken in excess.

Of course, you always need to remember that the amount you take in as income may be subject to taxes in your new tax jurisdiction and will need to be reported as per their tax rules.

You may be able to transfer the amount into registered retirement plans, i.e. 401K etc.   The reverse can be done regularly by any large financial institutions in Canada, but I generally find Canadians financial services personnel have more experience dealing with moving money to US than US financial services personnel have in transferring money to Canada.

So in summary – file an NR5 if you really think your tax rates will be less than 25% and see what number they will come up with. Know your tax treaties and use any tax treaty rules in your favour as able, but be prepared to work with your Canadian institution and educate them as required.

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In part I of this three part series we found that moving from Vancouver, BC to Corvallis OR hasn’t saved that much money despite moving to the supposedly “low tax” USA.  I have $166.11 less a year having moved here.

In Part II, I will tackle the big ticket costs of housing, car insurance and medical insurance.

First up, housing. Corvallis is a lot more expensive than I had expected.  Before we arrived I did some research and the city website indicated that the average one bedroom apartment was $500/mon, which is a lot cheaper than Vancouver, BC one of the most expensive cities in the world.   Therefore, I thought our total cost of housing would be around $700/mon tops.

Well, was I wrong. Corvallis has rental vacancy rate of under 1% .  The explosive  growth of Oregon State University and lack of corresponding growth in the rental units means that it is actually really hard to find a place to live.  Don’t get me wrong, you can get places cheap.  We saw a ‘bachelor’ unit that was in the basement with uneven walls, no windows and a shower that was in a concrete hallway all for just $400/mon.  There was a small two bedroom for $600/mon but it smelled of mold which was a problem with many of the units I saw.  For a week from my operation centre at the Days Inn through the worst rain storm of the last decade I must have seen every unit available in January and February. We even went to Albany(gasp!).

We eventually settled on a brand new one bedroom unit at this new condo complex which had been converted to an apartment complex.  On top of the rent, renters in Corvallis are expected to pay for everything else… sewage, water and garbage, electricity and even liability insurance.  The breakdown is below.

In Vancouver, we lived in subsidized student housing that included everything .. electricity, wifi, and even cable.   So instead of using our rent, I asked around and I think $1100/mon should get you a one bedroom in reasonable conditions.  Of course renters are required to pay electricity and WIFI.  The breakdown is below:


Canada US
Monthly after taxes and deduction $3,167.19 $3,181.04
Rent $1100.00 $921.00
Sewage/Taxes/Garbage $37.00
Insurance $8.83
Electricity $50.00 $50.00
WIFI $50.00 $50.00
After housing $2,067.19 $2,114.20

So after housing costs, it’s only slightly ($47) cheaper to live in the US.

Next I looked at car insurance.  In British Columbia we have government mandated car insurance through an agency called ICBC.  Their insurance is not cheap.  I qualify for the highest possible discount and annually it costs approximately $1300/year.  In the US my insurance is $606 for the year. So after car insurance I have $1958.86/mon in Canada and $2063.70/mon in the US.  So the US is still cheaper to live in by about $104 a month or around $1258 a year.

But we haven’t talked about health insurance yet.  In Canada we have national health insurance, although in BC we do have pay a premium.  The premium rate depends on the number of members of your family and your income level.  We pay $109 per month in premiums.  This covers all primary and hospital care.  We also pay supplementary health care for dental coverage, prescriptions, massage etc, but I’m going to ignore that and concentrate on primary care. In the US  we have to contend with a private system.  If you have a good employer, your health care is mostly paid for as it is for my husband.  However, if you do not have your own employment coverage or are not covered by your spouse then you have to pay for yourself.  If I get the same coverage as my spouse, our cost will be $306/mon with an annual deductible of $200.  A deductible is the amount you have to pay up front each year and only once you exceed that does your coverage start to pay portions of your care.   I also received independent quotes for healthcare and they ranged from $150 – $250/mon and have deductible $1000 – $2500.  Given that I probably will only go to the doctor twice a year at a cost of $150 per visit I’m likely not to need to take advantage of my plan that much beyond the deductible. So let’s say I take my husband’s work coverage:


Canada US
Monthly after taxes, rent and car insurance $1958.86 $2063.70
MSP premium per month 109
Husband’s monthly health premium 6
My monthly Health Premium 306
Monthly after Health Insurance $1,849.86 $1,751.70

Living in US has all of sudden became more expensive.  I understand now why people would choose to not get insurance. Even if I take the cheapest premium option which leaves me with a deductible of $2500 per year ( which means unless I have a real emergency, I’m paying for my own health care costs) :


Canada US
 MSP premium per month  109
Husband’s monthly health premium  6
My monthly Health Premium 150
 After Cheaper Health Care $1,849.86 $1,907.70
With 2 doctor Visits ea  $400
Money left over for the year $22,198.32 $22,492.40

So US still works out cheaper to live by $294 a year. Next we’ll see if the lack of sales taxes in Oregon makes up for one of the highest state income taxes.

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My husband and I recently moved to the Corvallis, OR from Vancouver, BC. Everyone was happy for our new start and one of the things I constantly heard was that it would be cheaper for us.  All those thousands of cross border shoppers propping up Washington sales registers  can’t all be wrong, right?

Well, never a person to take common wisdom for fact, I thought I should run some numbers for our friends on both sides of the border.

First, we will assume a gross (before taxes) income of $50,000.  We will assume that the currency exchange rate is at par which is where it has hovered for most of the past few years.  This income is at a good average level, an easy even number and is nice because it doesn’t fall in either the lowest tax bracket or the highest.  For comparison, the median income for both the cities are:

  • Vancouver BC (2009) was $67550 data from Statistics Canada
  • Corvallis, OR (2011) was $74200 data from HUD

One reason that many Canadians assume that the US is cheaper is the often heard mantra that the US has lower taxes.  I don’t know how many times I’ve been told by our friends that Oregon has no sales tax and that it will save us a bundle. It seems to be the number one thing Canadians know about Oregon.  Of course, just because Oregon doesn’t have sales taxes doesn’t mean it doesn’t have taxes, there are state and federal income taxes and payroll taxes.

So here’s how $50,000 gets taxed on federal and state/provincial taxes.

To estimate the tax paid in BC I used the E&Y tax estimator which assumes no deductions. For an income of $50,000 in BC you end up with a tax payable of $8,847. That’s an average income tax rate of 17.69%. For the US taxes I use the take-home-pay calculator on calculator.net and tax payable for the year $8,981 assuming 2 deductions (I been told that’s average) or average rate of 17.96%.

Of course the actual tax rate could vary dramatically from the above given various deductions, but for simplicity’s sake and to make a fair comparison we assume that there are not any other deductions.

Then there are the social service payments – Canada Pension Plan/Social Security, Employment Insurance (as unemployment benefits are called in Canada) and Medicare etc.  After taking these into consideration this is how the two countries stack up for income taxes:


Canada US
Before tax income 50000 50000
tax payable 8847 8981.28
CPP/Social Security 2306.7 2094.12
EI 839.97
Medicare Tax 723
Worker’s Comp 29.16
After taxes and deductions 38,006.33 38,172.44

As you can see there isn’t actually that much difference difference and that it is actually a little bit more expensive to live in US.  In part II I will look at the fixed cost of living differences between these two cities and in part III the impact of the sales taxes.

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