Tax implications of long-term volunteering/working out of Canada


I am a retired Canadian woman in my early 50s who is considering volunteering in Honduras (teaching English to disadvantaged children) for an extended period of time. While I am away, my main source of income will be interest income and capital gains on my investments.

In Honduras, I will likely receive room and board and a stipend of approximately $200/month to assist with living expenses.

Does Canada have a tax treaty with Honduras? If so, can you refer me to the relevant government legislation?

Many Canadians live in Canada for 1/2 year and live out-of-country the other half. Are there tax advantages to this?

What are the tax implications if I am out of Canada for an entire year or more and do not have a Canadian address? Are there benefits, to declaring myself a non-resident of Canada? For example, while living out of the country, can I cash out my RSP without paying tax on it?

I do not necessarily need to volunteer in Honduras if there is another country that offers more tax benefits.

Any help/advice will be greatly appreciated. Thanks very much.


david ingram replies:

There is no tax treaty with Honduras.

There is no tax advantage to six months in Canada and six months out. The advantage is that by spending 183 nights or more ion your home province, you keep you provincial medical alive. For most of us, the cost of out of country medical without basic coverage is prohibitive. For instance at 65, most Canadians will pay $800 to $1,200 us PER MONTH for medical coverage ou8t of the country i fthey do not belong to a basic provincial medical plan. Ontario only requires you to be in Ontarion for 153 nights a year to remain covered for OHIP and medical.

I am not even going to try and touch this one in any detail. If you truly leave Canada as a resident and take up a bone fide residence in any other country, Canada will tax you 25% on any interest or dividends paid to you in the other country unless you are in a tax treaty country, in which case the Canadian tax on interest will likely be 10% and the Canadian tax on dividends and royalties will likely be 15%.

AND, you will need to buy private medical insurance.unless you are in Australia, England or Sweden where there are national universal health insurance plans.

Over the years I am sure i have had over 100 people who left the country and kept paying their provincial medical premiums or kept the free card and found out to their $100,000 or more dismay that they were not covered when their medical emergency ocurred. The December 1992 issue of Reader's Digest had four such stories as I remember. There is nothing new about this fact but people keep on falling into the false sense of security that they are covered because they have a piece of plastic.

I will compare it to auto insurance. You might have a wonderful car insurance policy with $5,000,000 public liability and $100 deductible for collision. However, if you are in anb accident and have been drinking, your car insurance is null and void.

If you do become a resident of "any" other country, you will pay 25% tax on any lump sum withdrawal from your RRSP. At one time, the tax treaties with Spain and Holland and a couple of other countries did allow you to take out your RRSP tax free from Canada but those situations no longer exist for any place that I know. If yiou are in most tax treaty countries today, the withholding on a monthly annuity or RRIF paymnet from your RRSP is 15% and 25% if you are not in a tax treaty country.

Honduras is as good as any country for your purpose. The Island of Roatan is particularly nice when there are no hurricanes expected.