Provincial Health Coverage versus Canadian Tax Status
Some Canadians equate health coverage with tax status. In fact, the two are not necessarily the same. Canadians living overseas who maintain significant ties to Canada may still be liable for Canadian income taxes, even though they have lost their provincial health care coverage due to extended stays abroad. One of the main benefits that Canada offers to residents is subsidized health care. While some provinces charge small monthly fees for medical coverage, many charge nothing. It therefore pays to ensure that your tax status matches your medical coverage status. Let’s look at three common examples:
Overseas Worker
For Canadians working full time overseas, the situation is usually clear. They can typically find medical coverage overseas, so there is no need to try and maintain provincial medical coverage. It is therefore usually a good idea ‘to emigrate’ from Canada so as to avoid any Canadian tax liability.
Long-Term Traveler
If you are planning a one or two year trip overseas, you will typically still be considered to be a Canadian resident for taxes. In most provinces, you can normally get an exemption to stay on provincial medical during your trip, which is preferable because it allows you to purchase a normal Canadian emergency travel medical policy. These policies are usually cheaper than expatriate policies, which are available to non-residents. In BC and Ontario, however, you normally have to pay to maintain your provincial medical coverage. For younger travelers with few medical issues, it may therefore be preferable to drop MSP or OHIP and purchase an expatriate medical policy instead.
Snowbirds
If you are retired and planning on living part of the year outside of the country, you still need to spend five or six months per year in your home province. This will allow you to purchase a normal Canadian emergency travel medical policy and keep your provincial coverage in place. However, if you don’t really want to spend much time in Canada, you should consider emigrating. You will need to cut your residential ties with Canada, but the tax savings of living in another country with lower tax rates can be significant. Some countries such as Costa Rica will also allow you to register for a local medical plan. In other cases, you will need to purchase an expatriate medical plan, which can be expensive. In fact, the extra cost of private medical coverage may exceed your tax savings. It therefore pays to consult with both a tax specialist and a medical insurance specialist before making this decision.
About the Author
Vance Derban is a licensed insurance broker at BestQuote Travel Insurance Agency. He can be reached at [email protected]