Lynn H. Says:
I am a retired Canadian, single with a middle-class income. I am seriously considering moving to Portugal. Can you tell me what my tax implications will be?
Global Diversification Expert Ted Baumann Says:
Hi Lynn,
Like Americans, Canadians are taxed on their global income, regardless of where it is earned. But unlike Americans, when Canadians leave the country, they cease to be tax resident, and are no longer liable for Canadian tax—at least on foreign income.
On the other hand, if you are retired, your tax situation will depend on the type of retirement accounts you have. If you have a Registered Retirement Savings Plan (RRSP) funded with pre-tax money, i.e., money paid into your retirement account and not taxed at that time, you’ll have to pay Canadian taxes on your distributions. On the other hand, if you have a Tax-Free Savings Account (TFSA) funded by after-tax money, you shouldn’t be liable for Canadian tax on those withdrawals.
So the key question is your tax situation in Portugal.
The advantageous Non-Habitual Resident tax regime ended at the beginning of this month. That provides a flat 10% tax rate on foreign pension income. That means you’re unfortunately looking at the prospect of being liable for Portuguese income tax, which ranges from 14.5% to 48% depending on your income bracket. Any taxes withheld by the Canadian authorities when you take disbursements will be credited back to you against your Portuguese taxes. In other words, you won’t pay double tax on the same pension payouts.
Again, a lot depends on whether your pension is an RRSP or an TFSA. If you’ve already paid tax on the income you contributed to your TFSA, then in theory that money shouldn’t be taxed by the Portuguese. On the other hand, if you have an RRSP, you’ll be liable for Portuguese income tax.
The bottom line is this, depending on your tax bracket in Canada, you may end up paying more income tax living in Portugal if your tax bracket there it higher than that. But for many people, that’s an acceptable trade off, since Portugal has extensive public services, including health care, and the cost of living is much lower.
As you can see, there’s a lot to consider when diversifying overseas. That’s why I put together my Global Citizen Prosperity Blueprint—to help people minimize exposure, and maximize wealth, safety, and freedom.
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