Budget Canadians

stick1947 wrote:

Hopefully, all Canadians coming to Ecuador know enough to check out the exchange rate from CAD to USD.  I was not in that group but just a warning for Canucks on a fix or limited budget that the exchange can be a problem.  As of today, I am paying 21.57% to the bank and 3.999% to Visa to purchase USD.

Hopefully in the future Ecuador will wise up and switch to Canadian dollars instead of the economic imperialist USA dollars.
Am curious, must you pay any taxes on your Canadian pensions while living in Ecuador to either Canada or Ecuador?
Thank you and good luck.

No, you pay taxes to the country that your pension comes from

janet119 wrote:

No, you pay taxes to the country that your pension comes from

Thank you, Janet.
So Canadians living in Ecuador but receiving the national retirement pension or a pension from a Canadian company must pay income taxes to Canada?  Is there a set rate or a sliding scale based on amounts received?

Our pensions, either government or private, are treated like any income/  YOU PAY TAXES.  Can't escape the taxman even in South America.  Good to hear from both of you as I have read your posts.  Off the subject, I now have my residence visa (pensioner) and my cedulla and live in Cuenca now.
    Bryan

The amount of tax you pay is based on your residency status (factual resident of Canada, deemed resident of Canada, non-resident of Canada). Ecuador has a tax treaty with Canada, so if you are deemed non-Canadian resident you will need to submit a for annually to benefit from the flat 15% indicated in the tax treaty. If you're snow birding, you're likely still a Canadian resident and taxes would be applied as if you were living there year round. There is actually a 4-5 form on the CRA website that can be submitted to determine your residency status, but the process seems somewhat subjective and you'll get a different answer from different agents. Hope that helps.

PEI Red wrote:

The amount of tax you pay is based on your residency status (factual resident of Canada, deemed resident of Canada, non-resident of Canada). Ecuador has a tax treaty with Canada, so if you are deemed non-Canadian resident you will need to submit a for annually to benefit from the flat 15% indicated in the tax treaty. If you're snow birding, you're likely still a Canadian resident and taxes would be applied as if you were living there year round. There is actually a 4-5 form on the CRA website that can be submitted to determine your residency status, but the process seems somewhat subjective and you'll get a different answer from different agents. Hope that helps.

My understanding is that you pay 15% on pensions. That is stated in the document you mention (i.e., the agreement between Canada and Ecuador). However, there is a document called the NR5 which you can submit if your income is below $15,000 per annum and they will not withhold any tax. The idea of the 15% is that if you do not file an income tax return (which you do not have to do as a non-Resident of Canada) that amount is deemed sufficient to cover your taxes for the year. Filing a tax return might be an advantage as you might get some of the withheld tax back.

You do not have to submit any 4-5 form to establish residency. When you submit your next tax return you are supposed to declare whether you are a resident of Canada or not. After you do that your status will change to a "non-resident" and then they will automatically start deducting the 15% on your Canadian pension. Other pensions will not necessarily know about your status change. You are supposed to let them know. If you don't I don't know what the ramifications might be. As long as you pay your taxes I suppose they won't really care.

Some people make a point of returning to Canada once a year. This is to maintain connections to Canada and thereby prevent their status being changed to a "non-resident". This would probably be an advantage if your income is over $15,000 per annum.

Once you are established as a "non-resident", you can always return later to Canada and change this status.

Thank you all for the information.  So as I understand it, as a non-resident Canadian living in Ecuador you will have 15% of your pension withheld regardless of any other circumstances?  So if a couple receives $20,000 in pension they will have $3,000 withheld and that will be the tax owed, no deductions or other allowances?  Is there a government pension available to everyone like the Social Security in the USA?  Is it also taxed like any other pension?

Mugtech:   There can be other deductions depending on your status and what other earnings you have other than pensions.

Like I said before the 15% will be withheld once you are classified as a "non-resident", unless you make $15,000 or less a year and file an NR5. This is true regardless of circumstances. As to the $20,000 example: Yes that is true.

Yes SS is the same as our Canada Pension Plan (CPP), but we also get Old Age Security (OAS). The amount you get depends on how long you have paid into the plan while you were working. It can be roughly $1100 - $3000 per month depending (I think is close to the usual monthly range). The depends also involves whether you take your pension at 60, 65 or 70.  Of course if you have worked for the government your pension amounts to more than your salary was when you were working. This isn't for all government employees just the politicians.

And yes the pension is taxable just like any other income.

MikeGB.  You have most of it right except the Old Age Security (OAS) is a same fixed amount for everybody and the CPP is a long way from the numbers you used (unless you got them from that politician).  It is a flexible amount as you say but there is a ceiling on it and it is not a high ceiling.  I drew my CPP at 60 and worked for 4 more years.  The difference between 60 and 65 is only about $200 a month.  Also, you cannot draw your OAS until you are 60.  Can't comment on the taxes in Ecuador as I still pay mine in Canada.
   Bryan

stick1947 wrote:

MikeGB.  You have most of it right except the Old Age Security (OAS) is a same fixed amount for everybody and the CPP is a long way from the numbers you used

Yes, I know OAS is fixed. I guess I wasn't totally clear. And the figure I quoted included OAS not just CPP. My total (CPP + OAS) at age 65 will be close to $2000/mth.

I would greatly advice you to get proper information from a tax professional specialized in foreign taxation.  You can also call the CRA (they have an international section for non-resident) or the IRS if you are American for a simple question, but they won't give advice.  Tax treaties and laws in every country are consistently changing and good faith is usually not recognized as a valid reason when making a mistake.

One thing sure, Ecuador do not tax foreign-source revenues.  Only local revenues (unless there's a specific treaty I presume).  If you are Canadian and want to keep your Provincial health coverage, you will automatically loose it if you spend more than 183 days in a year outside of Canada.  Be careful.  In Quebec, we can ask for a waiver once every 7 years, but if you live outside of the country for over 183 days two years in a row, you are not covered anymore,  There's a waiting period of 3 or 6 months to get it back, so be careful and do your homework.

Yes, it is very complicated, I am just looking for general rules.  In the USA the Social Security Benefits are treated differently for income tax purposes than other retirement income.  My wife and I will collect $30,000/year SS benefits and withdraw $16,000 a year from our retirement IRA's and 401(K)'s and pay no income tax.  In the USA the SS benefits are divided in half and then added to other income to determine if the SS benefits are taxable.  If the two add up to less than $32,000 then none of the SS benefits are added to the taxable income.  Since the standard deduction and exemptions for two people is $20,800 ($1,200 more if one is 65 or older), my wife and I only have $16,000 before deductions, so on $46,000 of income we pay no tax, and could make a few dollars more and still pay zero.  My question is, how much income tax would a Canadian couple living in Ecuador pay with the same amounts, $30,000 in national government retirement benefits and $16, 000 in private retirement income?  Assume full time residents of Ecuador.

Right now the Maximum OAS is $563.74 per month and the maximum CPP is $1065.00 per month but AVERAGE CPP is about $600 monthly.  These figures are from the Service Canada website. I suggest having savings or company pensions to back you up.

Mugtech:  Here are the tax rates for Canada:

Federal tax rates for 2013:
15% on the first $43,561 of taxable income, +
22% on the next  $43,562 of taxable income (on the portion of taxable income over $43,561 up to $87,123), +
26% on the next  $47,931 of taxable income (on the portion of taxable income over $87,123 up to $135,054), +
29% of taxable income over  $135,054.

All pensions (government or otherwise) are subject to these rules. It doesn't matter if you are resident or not you pay the same.

MikeGB wrote:

Mugtech:  Here are the tax rates for Canada:

Federal tax rates for 2013:
15% on the first $43,561 of taxable income, +
22% on the next  $43,562 of taxable income (on the portion of taxable income over $43,561 up to $87,123), +
26% on the next  $47,931 of taxable income (on the portion of taxable income over $87,123 up to $135,054), +
29% of taxable income over  $135,054.

All pensions (government or otherwise) are subject to these rules. It doesn't matter if you are resident or not you pay the same.

Thank you Mike.
What kind of standard deduction is there, if any for a married couple?  If they have all retirement income is all of it taxable?  Suppose a Canadian couple had a total of $46,000 in retirement income, how much would be taxable?

mugtech wrote:

Thank you Mike.
What kind of standard deduction is there, if any for a married couple?  If they have all retirement income is all of it taxable?  Suppose a Canadian couple had a total of $46,000 in retirement income, how much would be taxable?

I don't think there is any deduction for a married couple, but then I am not married so am not the best person to ask about that. However, you can offset your earnings over the two of you. For example, if one of you has a much lower income than the other, the one with the higher income can distribute some of his/her income to the person with the lower; thereby reducing the tax you will pay.  There are other deductions available. For example, medical expenses, tuition's, and others. I can't remember them all.

All retirement income is taxable except if you receive income from military service. For your question about the $46,000, the tax rate schedule I provided in a previous post would allow you to calculate that.

MikeGB wrote:

I don't think there is any deduction for a married couple, but then I am not married so am not the best person to ask about that. However, you can offset your earnings over the two of you. For example, if one of you has a much lower income than the other, the one with the higher income can distribute some of his/her income to the person with the lower; thereby reducing the tax you will pay.  There are other deductions available. For example, medical expenses, tuition's, and others. I can't remember them all.

All retirement income is taxable except if you receive income from military service. For your question about the $46,000, the tax rate schedule I provided in a previous post would allow you to calculate that.

So it sounds like for a couple with no medical expenses or tuition would pay tax on the $46,000 at 15%, $6,900, because each one individually earned less than $43,000.  Is that correct?

mugtech wrote:

So it sounds like for a couple with no medical expenses or tuition would pay tax on the $46,000 at 15%, $6,900, because each one individually earned less than $43,000.  Is that correct?

$46,000 - $43,561   =  $2,439

15% of $43,561 =  $6534.15      22% of $2,439 =  $536.58

$6534.15 +  $536.58 =  $7070.73  (this is the total tax you would pay on $46,000)

However, if this is the total for both of you, then you could distribute the total over the two of you. So each has $32,000.  Then you each pay 15% of $32,000 or $4,800. Obviously this scenario is not the best.

Since the minimum is $15,000 where no tax has to be paid. The best would probably be this:

$46,000 - $15,000 = $31,000   15% of $31,000 =  $4,650  So, one declares $15,000 (this person pays no tax) and the other declares $31,000.

MikeGB wrote:

$46,000 - $43,561   =  $2,439

15% of $43,561 =  $6534.15      22% of $2,439 =  $536.58

$6534.15 +  $536.58 =  $7070.73  (this is the total tax you would pay on $46,000)

However, if this is the total for both of you, then you could distribute the total over the two of you. So each has $32,000.  Then you each pay 15% of $32,000 or $4,800. Obviously this scenario is not the best.

Since the minimum is $15,000 where no tax has to be paid. The best would probably be this:

$46,000 - $15,000 = $31,000   15% of $31,000 =  $4,650  So, one declares $15,000 (this person pays no tax) and the other declares $31,000.

Thank you
It appears to me that a couple making the same $46,000 and maximizing the distribution so that one pays zero would owe $4,650 in Canada but $0 in the USA.  So any couple making more than $30,000 would owe some taxes, even if they made $31,000, then 15% of $16,000 would be owed, $2,400, but if they earned $29,999 no tax would be owed, meaning that by earning $1,001 more they would owe $2,400 more in taxes, so their marginal tax rate would be 240%.  Rather steep.

mugtech wrote:

So any couple making more than $30,000 would owe some taxes, even if they made $31,000, then 15% of $16,000 would be owed, $2,400, but if they earned $29,999 no tax would be owed, meaning that by earning $1,001 more they would owe $2,400 more in taxes, so their marginal tax rate would be 240%.  Rather steep.

I don't understand how you arrived at 240%.  I also am not sure if I have it correct for a married couple. All I know is that you can distribute your income between the two. It sounds reasonable that as a couple $30,000 would be the max without paying taxes given that it is $15,000 per person. Maybe the minimum works differently when a couple is considered. I don't know.

MikeGB wrote:

mugtech wrote:

So any couple making more than $30,000 would owe some taxes, even if they made $31,000, then 15% of $16,000 would be owed, $2,400, but if they earned $29,999 no tax would be owed, meaning that by earning $1,001 more they would owe $2,400 more in taxes, so their marginal tax rate would be 240%.  Rather steep.

I don't understand how you arrived at 240%.  .

By earning an extra $1,000 from $30,000 to $31,000 the tax went from $0 to $2,400.  The extra $1,000 in income increased the taxes by $2,400, so the marginal tax rate on the $1,000 was 240%  By earning the $1,000 your net income decreased by $1,400.  You started out by being allowed to keep all $30,000 of your earnings, but when you hit $31,000, your net after taxes became $28,600.