Covid-19 has forced millions of people to work from home.
In the beginning, it was a surprise. Everyone tried to adapt as soon as possible while dealing with anxiety, fear, and other insecurities.
Soon enough, working from home became the new normal. People built new routines and started to question their working habits of the past.
As more and more people started working from home, they started to realize that:
- they don’t have to live within 30 minutes of their job
- they could live in a less expensive, less dense part of town and pay less money in housing
- they could live in a different province (or state) and pay an even lower tax
- they could also live in a different country and pay zero taxes.
Everyone knows that living in big cities such as Toronto, Vancouver, New York, Los Angeles, etc. is very expensive, but in most cases, it was worth it because of the proximity to work.
But let’s face it. Many of us are becoming digital nomads. We can work from any place in the world as long as there is a decent internet connection. So if that’s the case, why not move and save thousands of dollars in expenses related to city-living, and if we continue that line of thought, why not consider moving to a lower tax jurisdiction and pay zero taxes?
Thousands are leaving New York and California for Texas and Florida
Did you know that in seven states you pay zero taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming? Two others, New Hampshire and Tennessee, tax only dividend and interest income. Alaskan residents even get an annual oil credit.
At the same time, states such as New York and California are strangling their citizens with high taxes. The more successful you are, the more you are penalized.
Here is Joe Rogan, explaining why he’s leaving California after 25 years.
Funnyman and podcaster @joerogan explains why he’s moving to #Texas after more than 25 years in Los Angeles. pic.twitter.com/GT7l1S2M7j
— Jon Miltimore (Parler: @Miltimore79) (@miltimore79) July 29, 2020
- Billionaire Paul Singer is taking his $41 billion firm, Elliott Management, From New York to Florida
- Billionaire Paul Tudor Jones and Wexford Capital also move from NY to Florida
- Billionaire investor Carl Icahn has also moved from NY to FL
Florida has no statewide income tax, estate tax or inheritance tax. Meanwhile, New York’s top income tax rate is more than 8%.
New York is also among a number of high-tax states contending with an exodus of residents to lower-tax states.
There is not a revolt against paying tax. We all need to contribute towards the goods and benefits a society offers, but there should be a limit on how much taxes a person should pay.
I draw a mental line of 50%. At 50% it seems like a partnership, but when taxes are more than 50% of one’s earnings, it begins to feel more like abuse of power as opposed to a partnership.
Thousands were already leaving the US and Canada pre-Covid
Leaving the US and Canada in search of a lower tax jurisdiction is nothing new, it has been happening for decades. In every major city with low tax jurisdiction, there is an ex-pat community with people from all over the world.
I had an interview with a woman who moved to Mexico from the US and she was sharing about how much better was her lifestyle and how much money she saved in taxes and other expenses.
I lost all my Canadian sources of income
Before COVID-19 I had three sources of income. I used to teach dance in the evenings, I used to be a photographer during the weekends, and I used to write my blog during the weekdays.
As you can imagine, my dance business just disappeared. People are not able to take dance lessons and maintain social distance at the same time.
My photography business also disappeared. I used to photograph weddings and corporate events, and as you know, it’s impossible to have that kind of event while social distancing.
My only source of revenue is my blog which is not a Canadian source of revenue. My blog readers are in the US, and my clients are in England. So, for all practical reasons, I could be anywhere in the world and still be able to do my job without a glitch.
If I wasn’t so attached to the people I love in Canada, I could move to a country where there is zero income tax and live tax-free.
Can you pay zero taxes by living overseas?
If you live outside of Canada, you may or may not need to file a return with the Canada Revenue Agency. The requirements vary based on your residency status and the types of income you have earned.
Factual Resident of Canada
- If you live outside of Canada temporarily, you are likely a factual resident.
- As a general rule, factual residents have residential ties to Canada, such as homes, businesses, or families, and they usually spend 183 days or more in Canada per year.
- As a factual resident, you must file an income tax return and report all of your Canadian and world income.
- If you already pay foreign tax on the world income you earn, you may be able to claim a credit for it on your return.
In some cases, you may spend more than 183 days outside of Canada and still be considered a factual resident. For example, if you attend school outside of Canada but maintain residential ties with Canada, you are considered a factual resident, regardless of the number of days you spend in Canada.
Non-Resident of Canada
If you permanently live abroad and have no residential ties to Canada, you are likely considered a non-resident of Canada.
- As a non-resident, you do not have to report world income to the CRA.
- However, if you earn Canadian income such as pension payments or if you dispose of capital property in Canada, you must file a return to report your Canadian income.
In addition, the last year you live in Canada, you must file a final return. Report your income as usual, but if you claim any benefits or credits, only claim an amount related to the portion of the year you spent in Canada.
Deemed Resident
There are some cases where you may sever your residential ties with Canada, live abroad, and still be considered a deemed resident. If you are a missionary, a member of the Canadian Services, or a government employee, you are most likely a deemed resident.
As a deemed resident, you have the same tax obligations as a resident.
- You must report all of your Canadian and world income, but you can also claim all of the applicable federal deductions and credits.
- You cannot claim provincial or territorial credits or benefits, but you don’t have to pay provincial or territorial tax, either. You will, however, incur a federal surtax.
Countries with a stable government, low taxes, and nice weather
Keep in mind, that when you are looking for low tax jurisdiction, it’s no different than shopping for a condo. There are condos with high condo’s fees but a lot of perks and thus it’s worth it, and there are condos with very low condos fees that you would not like to live in. In short, you want the best product for your money.
A country may have high taxes, but what you get back is worth paying for it, and thus you feel that you get a good deal for your money.
Many citizens of the Nordic countries pay very high taxes yet they are among the happiest citizens in the world. And many citizens in Burkina Faso pay zero taxes and they are not as happy.
Also, keep in mind that in some countries, income tax could be zero, but property taxes, sales taxes, or other forms of taxation could be high.
With all the being said, here is a list of countries that at a first glance, could be a good destination. They have stable governments and good weather.
| Country | Tax rate |
|---|---|
| Andorra | 10% |
| Aruba | 7% |
| Bahama | 0% |
| Belize | 0% |
| Cayman Island | 0% |
| Cyprus | 0% |
| Trinidad | 0% |
Barbados is inviting you
Here is the Prime Minister of Barbados, Mia Amor Mottley asking you to give Barbados a try for one year.
We have been very careful about the measures we’ve put in place to protect our citizens and visitors from COVID considering travelers from low, medium and high risk cities. Work safely from #Barbados with our #12monthbarbadoswelcomestamp @firstmove pic.twitter.com/81z38zKKwO
— Mia Amor Mottley (@miaamormottley) September 9, 2020
What’s your decision?
I have made my decision.
I will continue living in Canada, I love it here and I have never been a high-income earner, so I don’t worry about taxes, and most of my savings are in my Tax-Free Savings account, which as the name says it, they are tax-free. But because I hate winters, I will go to South America during the winter.
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