Canada – The Tax Efficient Choice

TAX

• The “Immigrant Trust” – Wealthy immigrants can settle an “immigrant trust” the income and capital gains of which are legally tax free for a period of 5 years after the settlor (“grantor” in U.S. parlance) becomes a tax resident;
• There are no estate taxes in Canada;
• There are no gift taxes in Canada;
• Where the settlor of a trust does not accumulate 5 years of tax residency status in Canada, the tax free period of the trust lasts in perpetuity. In Canada this is called a “Granny Trust”, the notion being that if you have an offshore Granny who never becomes a tax resident then the trust, and its Canadian tax resident beneficiaries vis-à-vis trust assets, have no obligations to pay tax in Canada on income, capital gains or distributions — in perpetuity;
• If the settlor of the trust is an immigrant/citizen of Canada but never accumulates 5 years of tax residency status then he/she is like the “Granny” who never immigrates. The trust is tax free in perpetuity;
• Personal and corporate tax rates have been trending downward in recent years. U.S. tax rates are trending upward;
• Canadian citizens, unlike citizens of USA, can shed their Canadian tax residency status and still keep their Canadian passports merely by moving offshore.

IMMIGRATION

• Many U.S. persons are qualified to immigrate to Canada as “skilled workers”. For wealthy business people there are a number of options including the “investor” category wherein CAD $400,000 is lent to the government or a qualified financial institution at 0 percent interest on a completely no-risk basis for a period of 5 years. One variation permits the immigrant to borrow the $400,000 by prepaying $120,000 interest for the 5 year period. The $120,000 is the cost of immigration for a whole family;
• Immigrants, known as “Permanent Residents” (the equivalent of a U.S. “Green Card”) are not necessarily tax residents. Again this is quite unlike the USA where all citizens and all green card holders are deemed to be tax residents. In Canada only those people whose home base is Canada are regarded as tax residents;
• The immigration process takes between 1-2 years to complete.

CITIZENSHIP

• Immigrants to Canada will qualify for citizenship after residing in the country for 3 years. This usually requires 1095 days of physical presence in the 4 year period prior to the application for Canadian citizenship;
• A Canadian passport is one of the safest and most widely accepted in the world;
• It is possible, therefore, to acquire citizenship (3 years residence) before the tax free period of the trust (5 years) expires;
• Unlike the U.S., Canadian citizens are not necessarily tax residents. In fact it is estimated that nearly 10 percent of Canada’s citizens are non-tax residents of Canada living in other jurisdictions, including tax havens.