Canada or USA for Retirement?

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Nobody gets to choose the country of their birth. But if it were possible to pick either Canada or the United States, I’d advise incarnating souls that while the U.S. is a better place to become truly wealthy, Canada is superior for those who will have limited financial prospects or encounter costly health issues.

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Although the U.S. and Canada have similar financial structures, political attitudes to the creation and redistribution of wealth are dramatically different across the 49th parallel, which can affect retirement income.

Tax rates
Canadians file income tax to the Canada Revenue Agency by April 30 each year. Canada taxes services via the Goods & Services Tax (GST) or, (following provincial integration) the Harmonized Sales Tax, which C.D. Howe senior fellow Malcolm Hamilton describes as “quite significant.” This resembles Europe’s VAT or Value Added Tax.

Americans file taxes to the Internal Revenue Service by April 15th every year. Some states don’t impose income tax on top of Washington’s take, but may levy sales taxes. They are more modest than Canada’s HST. The U.S. does not tax services.

Both countries have a graduated income tax system that extracts a higher take for larger incomes. However, Canada’s high tax rates, including provincial taxes and surtaxes, kick in at much lower thresholds: under $100,000 versus more than US$450,000 south of the border. The overall tax burden in Canada is much higher, Mr. Hamilton says. Here, the combined (federal/provincial) tax rate reaches 40% by the time annual taxable income hits $90,000, while in the U.S. you don’t see such tax until you’re making more than US$400,000. In some states, you don’t see it at all.

In the U.S., the top federal rate of 39.6% doesn’t kick in until a whopping US$457,600 for joint filers, according to The Chicago Financial Planner, Roger Wohlner. American couples have the option of filing taxes jointly or separately. Canadian couples cannot file jointly, although the CRA is phasing in limited income splitting to targeted groups like seniors and families with children.
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