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A Tax Holiday in Canada?

Contributed by SovereignGroup.com
24 July, 2013

By Andrew Rogerson TEP and Arash Jazayeri B.Eng; MBA, JD of Rogerson Law Corporation


Simply put, Canada is a great country. Canada is by far one of the most attractive places for immigration, both for skilled migrants and investors. The country consistently ranks among the highest on the United Nations Human Development Index (HDI), which examines the health, education and wealth of each nation’s citizens according to life expectancy, educational achievement and standard of living. This indicates that Canada has some of the best-educated people and one of the highest literacy rates in the world. It is the second largest country in the world and is rich with natural resources, yet it has a population of only about 35 million people.

Housing costs are also very reasonable. The Canadian Real Estate Association publishes the average cost of buying a house in Canada, as well as breakdown by provinces and some major cities. The latest available statistics (June 2013) at the time of writing indicate the following average figures: Ontario CAD407,228; Quebec CAD270,221; Manitoba CAD266,903; and Newfoundland & Labrador CAD289,828. More specific figures for various cities are available on http://crea.ca/content/national-average-price-map. This shows Vancouver to be the most expensive Canadian city for real estate purchase, which is largely due to its popularity with overseas investors and immigrants.

Aside from its abundant resources and excellent infrastructure, Canadian laws offer many tools for asset protection, wealth preservation, financial privacy and flexible estate planning. One highly important vehicle is the Immigration Trust, which welcomes immigrants to Canada with a five-year tax holiday if they establish an offshore trust. This means that income earned and capital gains within the trust are tax free for up to five years to allow people to transition efficiently to the Canadian tax system. It is important to consult an expert when setting up an Immigration Trust to ensure that the benefits can be both realised and maximised. What follows are some of the salient issues to be considered.

The unit base for this tax exemption period is the individual. If for example, a husband who has never been a resident takes up residency with his wife who has previously been a resident for two years, the husband would still be eligible for the full tax-exempt period of five years. It should also be noted that residency is cumulative. As a result, in our example, the wife would have her tax-exempt period reduced by two years. It therefore follows as a corollary that an Immigration Trust can be set up even after an immigrant has already become a resident.

It should also be noted that, in Canada, taxation of a natural person’s income is based on the calendar year. In other words, depending on the date that an individual becomes a Canadian resident, the duration of tax-exempt period can range from 48 months plus one day to 60 months. As such the best date to begin the Canadian residency is in January.

With the proper arranging of the immigrant’s affairs it can even be possible to extend this tax-exempt period beyond the original five-year period provided that no current income from the Immigration Trust is remitted to a beneficiary resident in Canada.

While there are usually fees associated with offshore asset management companies acting as trustees and protectors of the trust property, for affluent immigrants the savings can far outweigh the costs. Before taking up residency in Canada, be sure to consider whether it is worth your while.


About The Sovereign Group

The Sovereign Group’s core business is setting up and managing companies, trusts and other compliant structures to meet the specific personal or business needs of our clients. Typically these would include tax planning, wealth management, succession, foreign property ownership and facilitating cross-border business. We have also developed a wide range of supporting services including specialist tax advice, residence and citizenship, funds, IP protection, accounting, insurance and pensions, as well as marine and aviation services.

Sovereign offers specialist trustee services for the private client. We can advise on all aspects of setting up trust structures, including the drafting of trust deeds, and provide ongoing trustee services of the highest quality. Our independence means we are also free to source the best investment terms for the trust funds under our administration.

First of all we need to understand a client’s personal and business affairs, their requirements and goals. We can then design a structure that will be functional, cost effective and fully compliant. We will never advise clients to establish any structure that would not be effective if scrutinised by their home revenue authority.


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