US CANADA Gold, Taxes, Immigrant trusts, and Permission for Permanent Residency

QUESTION:

Hello

We currently have cash assets held in a GIC in Canada.  We
are US citizens in the final stages of being granted
permission for permanent residency in Canada.  After we
receive our PPR, we will likely wait about 18 months
before we make our complete move to Canada (We'll land
before then, but then return to US to finish my contract). 
We would like to use an alternate investment vehicle than
our currently held GIC.  We predict an inflationary marekt
and want to pull money from the GIC to invest in gold
bullion.  We would like to take advantage of the tax
shelter that may be available to us when we transit to
Canada.

Would it be better for us (in regards to taxation), if we
bought gold bullion in Canada and held it in a Canadian
bank, or would it be better to buy gold bullion in the US
and bring it  across the border when we officially move, or
at a later date via an immigration trust.  I'm under the
impression that if we bought gold state-side, held it here
for 5 years, and then brought it into Canada, we would
"reset" the original purchase value of the gold bullion to
whatever its calculated value is at the time of import?  I.e.
the gold bullion's value at the time of import to Canada
would be used, not the original value at the time of
purchase?  Would this be a true tax-free benefit that could
be realized by the sale, in Canada, of the bullion
immediately after its import?  For example

In the US, in 2007, buy bullion assets worth $10,000
in 2012 import the US bullion assets to Canada with a new
appraised valuation of $15,000
in 2012 sell the bullion assets in Canada at the price of
$15,000
Net $5,000 profit (when calculated against original
purchase in 2007)
But net $0(zero) capital gains under Canadian tax law as
the asset was sold for the same value that was assigned to
it at the time of patriation.

In other words, capital gains of an asset (including bullion)
are calculated by comparing the value at the time of
patriation with the value at the time of sale.  Capital gains
is NOT calculated by comparing the the value of the asset
at the time of original purchase (in the US) with the value
at the time of sale in Canada.

Is this correct?

Thanks,


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david  ingram replies:   If the gold goes up in the trust, you would be correct.  However, if you had done it five years ago, your $15,000 US of gold would be worth one-third less because of the decline in the US dollar.  Most Immigrant trusts have lost money in the last five years if denominated in US dollars.

I tend to stay away from Immigratiojn trusts brcause i have seen several of them broken by the CRA (Canada Revenue Agency) when the CRA decides that the trust was not correct.

Also, since I specialize in US Canada tax situations, Having an immigration trust does not escape much, much, if any tax becasue as a US citizen, you are still taxabl;e in the US on any earnings in the Trust and it must be reported on forms 5471 and TDF 90-22.1.

The following older answer may help you.


gillian@centa.com: Please see bottom of message if you wish to unsubscribe.
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Subject:        Pre immigration tax planning
Expert:         taxman@centa.com
Date:           Wednesday June 06, 2007
Time:           08:20 PM -0400

QUESTION:

Hello David

I have been granted permanent residence and will be immigrating to Canada from the UK in mid July 2007.

I am wondering whether there is any point in looking into establishing a Canadian Immigrant Trust before I arrive in Canada - the theory sounds good, sheltering income generated outside Canada from Canadian income tax for the first 5 years as a Canadian resident. However all of the information I seem to come across appears aimed at high net worth individuals (ie over 1m canadian dollars).  I unfortunately am not in this category. I do consultancy work in the UK through a limited company, and do have a decent sum sitting in the UK limited company that I have not yet dividended to myself. My original thought was to transfer the company into an immigrant trust and then dividend the money into the immigrant trust. However, I want to use this money to put toward purchasing a residence in Canada - if the trust pays me money after I become Canadian resident, am I liable to Canadian income tax on this because it is counted as income? If this is so, then I might as well dividend the
money to myself before I leave the UK, pay UK tax on it, and then just transfer the money over? I cannot seem to find any information on the set up and administration cost of such a Canadian Immigrant trust.

I also require some advise on the timing of sale of my UK residence if I decide to sell after becoming settled in Canada. I am not planning to sell in the UK at present, and aim to go cheap and cheerful on Canada property for the first few years. I may, however, after becoming settled, decide to sell in the UK and use the proceeds to buy a princial Canadian residence. Do I have to pay UK or Canadian capital gains tax on the property? The UK house will be rented while I am settling in Canada. Is there any point considering transfering the UK property into a Canadian Immigrant Trust?

Getting the visa seemed straightforward compared to looking into tax planning issues.

Thanks for any advice you may have
 
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david ingram replies:

The Furthest I have biked is 350 miles from Winnipeg to Regina in 1960, five years before you were born. Your experience, training and amazing fortitude indicate to me that 'you' should likley beocme the world expert on Immigrant Trusts.

You have not said where you were moving to in Canada and the differences from Signal Hill to Victoria are immense as you know.

If I were you, I would make every effort to buy when you get here if you are coming to Alberta or BC.

If you are going anywhere else, i would hold back before buying.

Your house becomes revalued for Canadian Tax purposes when you enter Canada.  From that point, any gains are potentially taxable but because it was your principal residence, you 'do' have the right / ability to claim any capital gains to be tax free for the first 4 years 'if' you file an election to claim it as your principal residence under section 45(2) when you file your first Canadian Income Tax with the UK rent reported on form T776.

Canada taxes on mind and control. Therefore, your UK corporation must file a Canadian Tax return in Canda because its mind and control will be in Canada.  However, its value for Canadian tax purposes will be its worth the day you enter Canada as a PR.

I do not know what is going to happen in the future.  When you were here in 2003, the American dollar was worth $1.50 Canadian.  Today, it is worth about $1.04 Canadian.  At the same time, a house in Edmonton, Calcary, Victoria or Vancovuer has doubled in value.  Winnipeg, Regina, Saskatoon and most other cities in Canda have increased 50%.

I have no guarantee that it will happen again but i would be inclined to dissolve your UK corporation (less trouble), pay the tax on the dividends, and bring what is left to Canada and buy your accomodation.  If the property continues to increase in value, you will be a way better off.  If it stays level it does not matter and if it goes down in value for a while, it still does not matter because it is bound to increase again.

However, if you do not buy and property goes up $80,000, you have to earn $130,000 and pay $50,000 in taxes to make it up without paying any interest. 

Barring a nuclear holocaust (Chernobyl ??), Real estate in Western Canada is not likely to collapse in teh near future, and yes, I am aware that you feel you are a Chernobyl victim. Can it hit twice?

The following will give a slight indication of my feeling about immigrant trusts in general. 

Since any money you take out 'is' taxable in Canada and you will likely need funds out of the trust, you have to have close to a million in my opinion to make it worthwhile.  sorry, I did not mention PW in the following.  It was not on purpose, just did not name EVERYONE.



[CEN-TAPEDE] Immigrant Trusts, KPMG, Deloitte Touche, ask international income tax & immigration expert consultant david ingram from North Vancouver, BC, Canada experts on RRSP RESP IRA 401(K) radio CKBD 600AM 9 AM Sunday mornings on Fred Snyder's IT's YOUR MONEY

centapede at lists.centa.com centapede at lists.centa.com
Wed Aug 10 11:46:49 PDT 2005
QUESTION: We have just received our permanent residency to move to Canada
from England.I would like to put 90,000 pounds into a guernsey offshore
account.This is because the interest rate is 5.10 percent.When living in
Canada when i send my tax forms in would i have to mention the ineterest i
made on my tax form.Whether i bring the money into Canada or leave it still
in the account. The interest would be equivalent to 10,000 Canadian
dollars.And if i was taxed on this,what would be the percentage.
Thankyou
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david ingram replies:

New Immigrants to Canada are allowed to set up a five year immigrant trust
which allows them to accumulate money within the trust tax free for that
five year period.

However, the Canada Revenue Agency (CRA) has a bad habit of breaking the
trusts. In the last two years I have had two South Africans with $400,000
and $1,000,000 tax bills because the CRA deemed that their immigrant trusts
did not qualify.

I doubt that it is worth your effort for 90,000 pounds as the setting up and
management fees would be equal to the amount of tax you would save.

The tax on $10,000 Canadian split between two spouses will depend upon what
other income they have.

Our marginal tax rates are approximately

25% on amounts under $35,000

30% from $35,000 to $60,000

35% from $60,000 to $100,000

40% from $100,000 to $120,000

44% over $120,000.


Every province and territory (13) has a different local tax rate so there
are likely 60 different figures.

The foregoing is very approximate but is sufficient for you to figure out an
approximate tax on $10,000.


If you are going to deal with the concept of an Immigrant Trust, do NOT deal
with someone you find with an Immigrant Trust website. My suggestion would
be to consult with one of the BIG International Accounting Firms such as
KPMG, Deloitte, etc.


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