Follow the flock south

If you think spending a few months in the sun every year is a great idea, but only for millionaires, it’s time to reconsider. We’d like to let you in on a little secret. More than a million Canadians aged 55 and up have learned the ins and outs of leading a snowbird lifestyle—and many of them don’t have big budgets. As you’ve probably heard, snowbird is a term used to describe a Canadian who regularly spends time in warm-weather spots in U.S. Sunbelt states like Florida, Arizona, Texas and California, as well as Mexico, for up to six months every year. Some drive down in campers or RVs while others rent condos or houses in different areas of the Sunbelt every year. Some even buy a home outright and return year after year.

That’s exactly what Rick Thorpe and his wife Yasmin of Penticton, B.C., do. Come mid-October, when the weather starts to get colder and rainier, they enthusiastically pack their bags and fly south to Green Valley, Ariz., just as they’ve been doing for the past four years. The small town of 30,000 people is a 20-minute drive from Tucson and serves as a winter home to the couple and 300 other Canadian snowbirds. “My grandson always asks why we go down south for the winter,” says Rick, 67. “He says he likes the snow. I tell him I really liked snow too when I was 10 years old. But I’m not 10 any more and I think sunshine is much, much nicer.”

Before buying their Green Valley home, the Thorpes spent a few winters renting properties in Palm Springs and different areas of Arizona. Then, in 2009, they fell in love with a spacious home in Green Valley and bought it for US$268,000 cash. With a paid-off Penticton home, along with Rick’s CPP and modest defined-benefit pension, the couple looked at their annual budget and decided living the snowbird lifestyle for five months of every year was doable if they planned and budgeted carefully. “Our ‘house in the sun’ as I like to call it, reminds us of our home in Penticton,” says Rick of the couple’s 1,826-sq-ft, two-bedroom Green Valley home. “In fact, the view from my back windows in both homes is similar, except that with the mountains outside my Arizona window, there’s an incredible big blue sky to go along with it every single day. You can’t beat it.”

How do they do it? Among other things, Rick and Yasmin are organized. Over the years, Rick has become somewhat of an expert on many of the issues Canadian snowbirds face—preparing annual budgets, watching the value of the loonie carefully to see if this year they’ll have a favourable exchange rate and making sure they have enough travel medical insurance to make their trips carefree.

If you’re wondering whether the snowbird lifestyle is right for you, read on. We ran the numbers and discovered a snowbird lifestyle can be had on just about any budget—from a super affordable $4,400 for three months in Mexico all the way up to $21,000 or more for a three-month stay in an upscale community in a U.S. southern state. See “How much extra will you need to live the snowbird lifestyle?”

In all cases, you need to understand some important details, including the financial, health and tax consequences, customs, insurance and estate planning. “Every person’s situation is different and regulations and laws can change at any time,” says tax expert and author Evelyn Jacks. “You need to educate yourself and watch out for the tax traps. If you stay well informed, you’ll make the right choices.”

Do your homework. Before you begin your annual trek south, find out everything you can about making your stay carefree. It can start with a simple trip to your local library or bookstore to find books on the topic. A good one to start with is The Canadian Snowbird in America, by Terry Ritchie and Brian Wruk. You should also check out the Canadian Snowbird Association website at www.snowbirds.org. The association has over 70,000 members nationwide and for a yearly membership rate of $25, you can have access to all their timely information on everything from exchange rates to bringing pets across the border.

Popular Sunbelt locales with Canadians include Yuma and Tucson, Ariz.; Naples and Venice, Fla.; Palm Springs and La Quinta, Calif.; Galveston and Corpus Christi, Tex.; as well as San Miguel de Allende and San Carlos, Mexico. “Start looking in your 50s,” says Beverly Wood, 58, who with her husband Chris has spent the last two winters in San Miguel de Allende. “If not now, when? Looking is fun. You get to know a place differently when you’re planning to maybe live there.”

Whatever location you ultimately choose, you’ll need to make an effort to get to know people in the community. Take full advantage of any opportunities to meet up with people in your snowbird community. Attend cookouts, picnics and go sightseeing. As well, check out local rec centres, libraries and retirement community clubs. They all offer a variety of activities, including book clubs, film nights, tennis and day trips to various areas of interest. All you have to do is drop in and ask for a list of their ongoing activities. Then register for a couple of them.

Consider your budget. Make a list of the areas you can afford and draw up a rough budget. Some locations like Naples and Clearwater, Fla., and Phoenix, Ariz., have an abundance of modestly priced condo rentals at about $1,000 a month. (More luxurious accommodation in oceanfront condos can run you about $4,000 a month and up.) Check out www.extendedstayamerica.com for some of the best hotel and motel rates in snowbird locations. You can also try to negotiate a cheaper rate by phoning directly and letting them know you plan to stay four or five months. As well, try to book your flight south well ahead of time so you can take advantage of cheaper airfares and more convenient departure times. For instance, if you book 30 days prior to your departure, a return flight to Tampa, Fla., from Toronto will cost about $380 (including all taxes, surcharges and fees), often a couple of hundred dollars per person cheaper than if you book just two weeks ahead of time.

The cost of driving to the Southern States is about $700 each way if you include gas, food and hotel charges for three nights. You can save a few hundred dollars by doing the drive in 20 hours or so if you have two drivers and don’t stop for overnight stays in a hotel. “We drive back and forth each year because we want to use our car when we’re south,” says Rick Thorpe. “But I did the cost analysis and it’s just as cheap to fly.” If you choose to fly, car rentals are about $20 a day and often less if you book an economy class car for an extended time.

Groceries, clothes, restaurant meals and gas are about 35% cheaper south of the border. And you can pretty much find whatever you want—even in Mexico. “We have a Costco, a Walmart and Sam’s Club about half an hour away,” says Wood. “I have noticed though that here they have English products aisles and Spanish products aisles. The same box of Kellogg’s Corn Flakes will be $6 in the English aisle and $3 in the Spanish aisle. That’s a good tip to keep your costs down in Mexico.”

Make sure your health care is covered. Before you leave, check with your provincial health care provider to find out your province’s residency requirements and at what rate you’ll be reimbursed for emergency care if you become ill while outside Canada. For instance, B.C. reimburses only $75 for emergency in-patient hospital care while Ontario covers up to $400 a day.

While out-of-pocket costs for health care in the U.S. can run to tens of thousands of dollars if you don’t buy travel health insurance for a trip, the cost of six months of insurance is typically less than $1,000 if you have a basic $99 deductible. Make sure you shop around. One major provider to consider is Medipac Travel Insurance. Medipac will provide Ontarians with travel health insurance for up to 212 days and 183 days for people from other provinces, but you need to maintain your provincial residency and health insurance. For instance, for a 64-year-old male or female with no pre-existing health conditions who wants a policy to cover them for 183 days, the rate is $754 with a $99 deductible. It rises to $1,982 if they have pre-existing conditions, often defined as diabetes, heart problems, a prior stroke or a combination of these. “Make sure you have stable and controlled conditions before you leave to qualify for the insurance,” says Christopher Bradbury, vice-president of marketing for Medipac Travel Insurance in Toronto. “We expect to see 90 days of stability and that means no change in medication, dosage, and no treatment whatsoever of new conditions.”

Update your insurance. Make sure you call your home insurance provider and let them know how long you’ll be away. To keep your home insurance active, make sure that someone will be checking on your home for damage or vandalism on at least a weekly basis.

Some companies may require formal notification or payment of a premium if you drive a Canadian-registered vehicle down south in the fall or winter. The Canadian Snowbird Association suggests checking your liability limit, and ensuring a minimum $2 million of coverage. As well, you can use your vehicle in the U.S. for up to a year with Canadian licence plates and a Canadian driver’s license. If you want to leave a Canadian-registered vehicle in the U.S. for more than a year, you’ll need proper U.S. vehicle registration. Canadian automobile insurance is not applicable on a vehicle left in the U.S. on an ongoing basis, so you’ll need separate coverage from a U.S.-based insurance broker. “We shipped our van by trailer a few years ago because we fly down to Fort Myers every time we go south,” says Shirley Domelle, 64, of Toronto, an interior decorator who spends several weeks at her vacation home in Bonita Springs, Fla., every year with her husband Brian, 65. “The car has a Florida licence plate and it stays there. My husband and I both hold Florida driver’s licences as well. We found out U.S. car insurance is lower if we take the driver’s test here.”

Organize your finances. Set up online banking and pre-authorized payments for bills, check expiry dates on credit cards and debit cards and notify your bank and credit-card company about where you’re going and for how long. “We pay all our bills and manage all our investments online,” says Beverly Wood. “It’s also how we stay connected to friends and family back home.”

Keep a list of everything you bought in the U.S. and bring it back to Canada. Keep receipts when possible and realize that all items bought in the U.S. have to be declared. As a snowbird who has stayed longer than seven days, you can bring back items totaling up to $750 tax- and duty-free.

Keep in touch with loved ones. If you have kids and grandkids you’re used to seeing several times a month, a lengthy stay south of the border can be emotionally upsetting if you don’t take some steps to maintain contact. With social media such as Facebook and Twitter, you can easily keep in touch with family while you’re away. Consider setting up a Skype account before you go. Then arrange a good time to talk to your family a couple of times a week when everyone is home. Invite family or friends down to your snowbird nest for a week or two over the holidays. Finally, send small mementos or cards in the mail a couple of times a year—especially to your grandchildren.

Understand border logistics. It’s important to prove to border officials—especially American ones—that you have the means to support yourself during your stay. You can do that by bringing along recent Canadian documents like bank statements, tax return assessment notices or credit-card statements. To prove to border officials that you’re planning to return to Canada, bring a Canadian house deed or lease agreement, property tax bill, a pre-booked return ticket (if travelling by air), and U.S. Internal Revenue Service Form 8840 for non-resident aliens. (We talk about this on page 63.)

Keep everything in a “border binder,” which is simply a folder that holds documents that prove you’re a Canadian resident who has every intention of returning home. “I keep copies of my tax forms, a property tax bill for my home in Canada and a credit card bill,” says Bob Slack, 70, a retired principal from Athens, Ont., who spends winters in Winter Haven, Fla., with his wife Lois, a retired schoolteacher. “It goes a long way towards explaining why I’m in the U.S. It shows I’m simply there for a visit so I’m not detained.”

Most Canadian citizens are welcome to visit the U.S. for up to six months (182 days) in a rolling 12-month period. The number of allowable days doesn’t necessarily reset on January 1 just because the calendar year changed. The time is based on an individual’s travel dates, and can continue from one calendar year to the next. Every day spent in the U.S. through the year counts.

It’s important not to overstay your welcome. “If you go over 182 days in any 12-month period, U.S. immigration considers you a “resident alien,” says Roy Berg, a partner at Moodys Gartner Tax Law in Calgary. “That means if you get stopped at the border you can be denied entry to the U.S. in the future. Keep it simple. Aim for 120 days or less for no tax or immigration consequences.”

But in all cases, keep a calendar where you track precisely the days you spend down south. That’s for two reasons: getting the maximum days allowable without having to pay U.S. taxes, and making sure you meet the required number of days in Canada to qualify for your health insurance. (Check with your provincial health insurance provider to determine the amount of days required for your province.) “We try to keep our stay between 160 and 175 days a year to play it safe, both for tax reasons and for immigration reasons,” says Thorpe. “I also keep a detailed paper trail, including copies of hotels where I stayed, boarding passes and an itinerary so immigration sees where I’ve been and when.”

Medication is also a consideration when you cross the border. “To avoid any hassle at the border, if you’re planning to take medications in the United States, take only enough for your personal use for the time you will be away,” says Terry Ritchie, co-author of The Canadian Snowbird in America. It also helps to have all your medication clearly labelled in a clear, plastic bag when you go through customs. It makes them easily accessible and visible to border agents.

If you have pets, and want to bring them down south with you, you’ll want to ensure that they have all their shots—especially a rabies shot—before crossing the border with them. “We always have a recent health certificate from the veterinarian for our dogs Junior and Rosie,” says Beverly Wood. “They love San Miguel because they can be outside in the sunshine whenever they want. I think it helps keep them healthy.”

Taxing issues and residency rules Canadian residents who spend part of the year in the U.S. are considered either resident aliens (183 days or more in the U.S.) or non-resident aliens (182 days or less).

Resident aliens are generally taxed in the U.S. on income from all sources worldwide; non-resident aliens are taxed only on income from U.S. sources. That includes rental income, the sale or exchange of U.S. real estate, interest, dividends and annuities. Check with the U.S. Internal Revenue Service about completing and filing U.S. IRS Form 8840, Closer Connection Exemption Statement for Aliens. Also see the Canada Revenue Agency’s guide on Canadian Residents Going Down South for more details.

As well, all Canadian snowbirds whose visits to the U.S. fall between 30 and 183 days in a single calendar year are subjected to something the IRS calls a “substantial presence” test. This is to see if they will be deemed to be U.S. residents for tax purposes. If they are, they will be taxed on their worldwide income in much the same way as an American citizen and they would have to file a U.S. Income Tax return.

The IRS uses a formula to determine whether a Canadian visitor meets the criteria for a “substantial presence,” based on how much time they’ve spent in the country in the current year and two previous years. (You can refer to The Canadian Snowbird in America, by Ritchie for the details.) But even if you meet the substantial presence test, you can still avoid being labeled a U.S. resident for tax purposes by filing out Form 8840 with the IRS. “I always fill it out once I’ve been in the U.S. for four months in any calendar year,” says Bob Slack. “I keep track of the days I spend in the U.S. religiously and also keep a copy of Form 8840 with me when I’m crossing the border.” If you have any questions about this rule or other tax issues, consult with a cross-border tax lawyer before leaving.

Run the numbers before buying property. Right now there are some great real estate deals in the U.S. and Mexico. But before buying anything, make sure you understand the laws in the country or state in which your new property resides. For instance, in some states like Florida, non-resident owners pay higher rates of property taxes than residents—sometimes several thousand dollars higher. If you opt to rent out your U.S. property, you’ll need to fill out both a U.S. tax return with the IRS, and a Canadian tax return with the CRA.

In Mexico, buying a home comes with its own unique tax and ownership challenges, so hiring a lawyer or notary with experience in Mexican real estate before you buy would be a huge benefit.

“Renting is a good option if you’re not comfortable with currency valuation, tax consequences or have health problems,” says tax expert Evelyn Jacks. “Owning comes with tax consequences when you sell.”

As a U.S. property owner, read up on the benefits of cross-border trusts if you’re interested in passing your property down to your kids and grandkids in the most tax-efficient way possible. Estate, capital gains and U.S. withholding taxes are issues to discuss with a good tax lawyer.

Leading personal finance expert and author Gordon Pape has owned a home in Florida since 1997 but sold last year. He says buying a home in the U.S. entails several unplanned expenses, including financing costs, utility payments, home insurance, condo and homeowners’ association fees, golf or athletic community membership, pool maintenance, sprinkler maintenance fees, tree trimming fees, the costs of furnishing and remodeling the home, and buying an additional car.

All these expenses need to be looked at and evaluated before you make a final commitment. “There are pros and cons to every solution,” says Pape. “Taxes are an issue but frankly, I was more concerned about hurricanes and floods. Insurance for both have huge deductibles. I had two hurricanes hit my home in Florida a few years ago. In one case, we had to fix the roof, which involved a $6,000 deductible on an $11,000 claim. That’s where expenses can really add up.”

The lesson? It’s important to be very careful because when you’re down there, your heart can take control of your brain,” says Rick Thorpe. “Stay focused and make a fully informed and thoughtful decision before you buy any property.”

For Sandra Dare, 65, and her husband Graham of Kitchener, Ont., their passion for the snowbird lifestyle ultimately won out and they decided to buy a home for their winter stays.

“We wanted a home that was maintenance-free and ready for us every time we came down, so we just bought,” says Sandra of the Florida coach home the couple purchased in 2003. “My husband and I golf, play bridge and garden. In fact, I love wintering in Florida so much that I go into withdrawal whenever we come back to Canada. There’s just not as much to do here for us and the sunny days down there really help keep us active and energized.

The bottom line? Your success in living the snowbird lifestyle will depend more on what you do before you go, than after. Spend a few hundred dollars for a cross-border tax expert’s time so you can clarify any tax or immigration questions you may have in your own personal case.

Then ease into it, do your research, try out different locales and most of all, make sure you’re having fun so your trip south is always a much-anticipated annual event. That’s the best way of guaranteeing that your annual trek south will leave you relaxed, refreshed—and eager to come back for more next winter.