immigration tax planning
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. �
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
---------------------------------------------------------
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. �
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