Worth A Thought

Andrew Rogerson considers the attractiveness of Canada as a destination for relocation

STEP Journal – April 2008

Affluent clients, inquiring as to possible tax relocation, invariably expect to be advised to ship off to a Caribbean tax haven. For many, this would be appropriate advice. However, the intense popularity of Canada as a preferred destination for investors and skilled migrants, indicates that such immigrants feel they are acquiring a ‘good deal’ in this country. So what are the attractions?

The United Nations Human Development Index (HDI) ranked Canada sixth on its Human Development Index for 2006. The HDI examines the health, education and wealth of each nation’s citizens by measuring: life expectancy, educational achievement and standard of living. The breakdown indicates Canada has the best educated people and the highest literacy rate in the world. Canadians live the third longest, after citizens of Iceland and Japan. Canada stretches across many time zones from Atlantic to Pacific and as far north as the Arctic Circle. It is a safe country that has an excellent infrastructure.

Housing costs are very reasonable in Canada. 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 at the time of writing were for January 2008. They indicated the following average figures: Ontario CAD302,191; Quebec CAD208,264; Manitoba CAD169,668; and Newfoundland CAD160,252. More specific figures for various cities are available on http://www.crea.ca/public/news_stats/statistics.htm This shows Vancouver to be the most expensive Canadian city in which to purchase real estate. This is largely due to its popularity with overseas investors and immigrants.

The annual ‘Quality of Life Survey’, published by Mercer Human Resource Consulting, which is used by international businesses to evaluate needs of employees on transfer, rated Vancouver third in the world with 107.7 points behind Zurich with 108.1 and Geneva with 108. The survey uses the following criteria: political and social environment; public services and transport; economic environment; recreation; socio-cultural environment; medical and health considerations; schools and education; consumer goods; housing and natural environment.

Tax Advantages

Immigrants are welcomed with a five-year tax holiday, if they establish an offshore trust. Capital growth and income are tax free. This generous concession is designed to encourage would be immigrants to come to Canada and use this tax holiday to decide if they wish to remain. The vast majority stay, and, after the five years are up, are subject to future Canadian taxes on the trust assets. The gains of the previous five years are sheltered.

A decision to immigrate to any country involves an informed balancing of pros and cons. Rarely should pure tax issues predominate. Often it does, and new residents of many tax havens find that, although they are not liable to income tax, they are faced with a very high cost of living. Governments, even of small islands, need money to function. In the absence of income tax, then indirect taxes are frequently very high. In some offshore centres this can be 30 per cent or more, particularly on cars. In Canada, the current level of federal sales tax (GST) is five per cent. This compares favourably to Italy (20 per cent), France (19.6 per cent), Germany (19 per cent) and UK (17.5 per cent). The five per cent is a federal rate. All provinces, except for Alberta, also impose a form of GST or retail sales tax at rates ranging from five to ten per cent on the sales of taxable goods and services.. Small companies, of the type that an immigrant entrepreneur is likely to establish, are taxed favourably. The 2007 federal tax rate on the first CAD400,000 of taxable income for small Canadian controlled private corporations is 12 per cent and this fell in 2008 to 11.5 per cent and in 2009 will fall to 11 per cent. As of end 2007, there was also a federal surtax, which for small business income added an additional 1.12 per cent of federal tax. This has been eliminated as of 1st January 2008, To this, are added provincial taxes. For 2007 tax year, the Ontario government rate is 5.5 per cent for such companies. Thus, for small businesses the combined Federal and Ontario tax during 2007 amounted to 18.62 per cent. In other provinces, the 2007 combined small business corporate tax rate ranged from a low of 16.1 per cent in Alberta to a high of 21.1 per cent in Quebec. Obviously, this only refers to taxable income. Most small businesses will have very substantial deductions from gross income before there is any liability for income taxes. It is common and permitted to ‘bonus out’ to directors and employees, income over and above the CAD400,000 limit, to bring the corporate income down to take advantage of low small business tax rates. Many deductions and tax credits are also allowed to individuals including, particularly, a dividend tax credit that seeks to prevent double taxation of income flowing from company to shareholder. Also, if one has owned the shares in one’s company for at least two years and have been a resident of Canada for the same period, then when one sells the shares, up to $750,000 of the capital gain may be sheltered from tax.

Business Immigration Programme

Canada offers a most attractive Business Immigration Programme. The programme includes three classes: the Immigrant Investor Class, the Self-employed Persons Class, and the Entrepreneur Class.

This article will only refer in detail to The Immigrant Investor Programme. The programme seeks to attract experienced business people to invest CAD400,000 into Canada’s economy. Investors must:

show that they have business experience;
have a minimum net worth of CAD800,000 that was obtained legally; and
make a CAD400,000 investment.

The investment is managed by the federal government and is used by the Provinces to create jobs. The CAD400,000 investment is returned, without interest, after approximately five years.

Applicants may participate in government approved financing. Essentially, this enables them to put up only CAD120,000 and borrow the remaining CAD280,000. In such a case, interest charges amount to approximately CAD120,000 (the amount of the initial deposit). At the end of the five-year period, the investor forgoes the CAD120,000 deposit and therefore fulfils the programme requirements.

Investors come from all over the world. Currently, the majority of investors are from China, Taiwan, Korea and Hong Kong, but there are also substantial numbers of investors applying from the Middle East and elsewhere. Processing time varies depending which Canadian diplomatic post it is submitted to – Manila is currently the fastest with 30 per cent of applications to this centre being processed within eight months and Berlin is close behind. Although waiting times can be much longer, the federal government is commitment to finalising 1,000 federal investor cases per annum. Canada is a beautiful country with political stability; an impartial and independent judiciary and government service and highly developed banking and professional services. International standard shops, hotels and restaurants abound in the main centres. Perhaps a new home for some of your clients?

Andrew Rogerson TEP is a Toronto lawyer practicing in the fields of estate planning and asset protec