November 1995 CEN-TAPEDE - Offshore Tax Havens, Asset Protection Trusts

November 1995


david ingram's US/Canadian Newsletter          Pages 129-136






UPDATED May 11, 96 - (readers of this newsletter should also read the March, 1996 CEN-TAPEDE)


What Is An Offshore Tax Haven? Page 129

What Is An Asset Protection Trust? Page 129

Why Would YOU Have One? Page 129

Are Offshore Tax Havens Legal? Page 130

Why Do So Many People Have Them? Page 131

How Much Does It Cost? Page 133

Where Do You Go? - Who Does These Things? Page 133

Do You Save Any Tax LEGALLY? Page 134

After All That, My Recommendation! Page 134

Protect Yourself For Out Of Country Medical. Page 134

Further Information - Discount offer. Page 135




Offshore tax havens are usually bank accounts, corporations, or trusts set up in countries which are known for their banking secrecy laws and / or minimal corporation or trust reporting laws. These countries also usually have the further advantage of having little or no income tax.




An Asset Protection Trust is a trust set up with "someone's" assets owned by the trust. An Asset Protection Trust may be set up in one's own jurisdiction. There are, for instance, many family trusts in Canada which can protect a family's assets against lawsuits started against an individual member of the trust.


The trust is a special kind of legal entity holding assets. It is established by a "settler" or donor. The trust is then controlled by trustees who may be corporations, individuals or any combination thereof. The trust is managed for the benefit of beneficiaries who are usually related to the grantor or settlor of the trust and who may include the grantor.


The kind of asset protection trust which is currently being touted is usually in the Turks and Caicos or the Bahamas or Bermuda and is set up to avoid any number of eventualities. When set up in the aforementioned (plus another 50 or so) countries, one can be assured that the details of the transactions, including actual owners, directors, and financial information, will be kept secret. In countries like the Bahamas, it is a criminal offense for anyone to give out any bank account, trust or corporation information to anybody.




Legitimate reasons for having an OFFSHORE or FOREIGN ASSET PROTECTION TRUST would include but not be limited to:

1. Flexibility of income splitting among beneficiaries;

2. Easier settlement on death;

3. Reduction and even total elimination of probate fees;

4. Total privacy of affairs upon death;

5. Protection of assets against lawsuits.




The establishment of one of these accounts, corporations or trusts is almost always legal under the laws of the jurisdiction where the account or entity is established. The exception to this rule might be a Bahamian trust which is established after a problem has already occurred. For instance, if you had $1,000,000 in Canada and were suddenly being sued for $2,000,000, you might be tempted to "take your money and run" to the Bahamas and establish a Bahamian Asset Protection Trust. After all, their secrecy laws will protect your assets, right? WRONG! Three factors stop you from protecting all your money in such a trust at this point:


1. Even though you may have put all your assets into a Bahamian Asset Protection Trust and the institution accepted everything you gave it, under Bahamian law you may NOT put ALL or even a majority of your assets into the trust. That law does not state, but implies, 49% would be a maximum.


2. If a prior claim exists, the Bahamian Bank Secrecy laws do not apply. Show up in the Bahamas with evidence that John Smith owed you the $2,000,000 BEFORE John set up his trust and the trust CAN be broken.


3. If the money is there as part of a criminal action (under Bahamian law), the trust can also be broken. Since removing money from Canada to avoid creditors or to hide it in, during, or immediately before bankruptcy proceedings can be a criminal offense, it is possible that the Asset Protection Trust could be broken at that point if a government claimed that the money was part of a criminal activity. Remember here that just because you have never met someone who hid money before or during a bankruptcy and went to jail, hiding money or assets before a bankruptcy is a criminal offense and punishable more severely than a spontaneous robbery of a bank, supermarket, or jewelry store where no planning was involved.


A VERY high profile example of breaking bank secrecy laws over alleged criminal activity would be the recent incidents which have resulted in Brian Mulroney, Canada's Prime Minister for 9 years, suing the Canadian government for $50,000,000 for libel. The reason? The Canadian Government wrote to the Swiss Government on official stationary and seems to have named Brian Mulroney as the possible recipient of bribe money in 1988 when Air Canada bought 30+ AIRBUS aircraft for its fleet. Brian Mulroney has sued for $50,000,000 and will give $25,000,000 to charities if and when he wins. Since the largest libel award ever issued in Quebec was less than $200,000, it is unlikely that there will be a $50,000,000 settlement or award, but it sounds good.


In the meantime, the Government of Switzerland has frozen the bank accounts in question and is apparently preparing to release the paperwork as requested by Canada. So much for those "secret" Swiss banking laws. Remember that similar details were released by Switzerland in the Clifford Irving "fraudulent" ex-president Nixon / Howard Hughes case. In this example, Clifford Irving was forced to pay back money he had in a Swiss bank account because he was convicted in the United states of fraudulent misrepresentation with regard to the relationship he had claimed in a book.


Unfortunately for Irving, he happened to be in Switzerland when the suspicions arose. He was kept for a significant time in a Swiss jail without bail. Remember, in Switzerland, you are presumed guilty until you prove yourself innocent.


The reason that trusts are protected is that most of the Tax Haven countries will not honour a judgement issued by another jurisdiction. For instance, Bermuda might recognize a Canadian family maintenance order for $1,000 a month from a Canadian Family Court, but would not recognize a $1,000,000 income tax bill confirmed by the Supreme Court of Canada. The Bahamas will not recognize judgements from any non-Bahamas jurisdiction. However, it is possible for a person who feels that they were wronged by the owner of the FAPT (foreign asset protection trust) to take the action to the Bahamas and apply to the Bahamian court for leave to sue in the Bahamas under Bahamian law. If the wronged person won in the Bahamas, they could collect.


Governments have a lot of ancillary powers to pressure institutions.

In another incident, I sat in the office of a senior vice-president of the Bank of Nova Scotia while he talked to the United States Justice Department about a B of NS client in the Grand Cayman Islands. The U.S. government was assessing a $25,000 U.S. per day fine against the Bank of Nova Scotia which was using Grand Cayman bank secrecy laws to refuse to divulge information about their client to the U.S. Justice Department. Although not there when it happened, I understand that the Bank of Nova Scotia finally settled with U.S. Justice for "just under" $3,500,000 U.S. and had given the requested information to the U.S. authorities.

Please note that the U.S. Treasury Department did not levy the fine against the Canadian or Grand Cayman branches of the bank. The fine was levied against the conveniently located Miami branch of the Bank of Nova Scotia.


Recently, Revenue Canada has told all of Canada's chartered banks that they must issue T-5 slips to Canadians and give the details to Revenue Canada for every Canadian with an account in an offshore branch of a Canadian bank.


To date, the banks seem to have told Revenue Canada to "go fish" and have cited the bank secrecy acts in the foreign jurisdictions. However, in light of my Bank of Nova Scotia item above, and because of another situation in my office, I do not believe that the secrecy will last long with Canadian Chartered Banks or ANY BANK OF ANY COUNTRY THAT HAS A TAX TREATY WITH CANADA OR THE UNITED STATES. This would include BARCLAY's Bank, CITIBANK, and many of the other "safe" banks preferred by users of offshore trusts.


A lady client came in to report a "whole bunch" of undeclared income from a Caribbean branch of a Canadian Chartered Bank. She had had the money offshore for a looong time and when I asked her why she was pulling this large amount out of the bank and reporting it after all these years, she told me her brother had told her to take her money home. When I asked her what her brother did, it turned out he was the manager of the actual Caribbean "branch" bank where the money had been all this time. (I have to wonder. Does the banker brother know something?)


Another person wanted his trust brought up to date so that he could pay the tax under Canadian law. In this case, a daughter-in-law about to become an "ex" daughter-in-law was using the trust as leverage in a divorce action. With two other possible divorces coming up, the settlor of the trust decided that paying tax to Canada was cheaper than semi-legal blackmail.


In both cases above, the bank account and the trust were legal to create and hold. However, because of "secrecy" in the past, both persons had found it easy to forget to report their earned income to Revenue Canada.


Last month's CEN-TAPEDE dealt with this subject for U.S. citizens and in particular with regard to how the U.S. government requires Canadian RRSP income to be reported. However, in case you did not get around to reading the October 95 CEN-TAPEDE, I will tell you that the U.S. Treasury can impose an "up to" $500,000 fine PLUS "up to" 5 years in jail if they find that a U.S. citizen even has an undeclared foreign bank account, let alone an undeclared Foreign Asset Protection Trust.


Why do so many people have them, (including American citizens)?


1. Catastrophic events


Mr Brown is a structural engineer and he will always be subject to claims beyond most peoples' imagination. The family house is already in Mrs Brown's name as part of a legitimate pre-marital contract. Mrs Brown is also the owner of the large life insurance policy on Mr Brown's life.


Mrs Brown has absolutely nothing to do with Mr Brown's business and if something like the following goes wrong, her assets should be protected from seizure.


After spending 23 years working diligently at his craft, Mr Brown finds that he is involved in the collapse of a shopping centre roof (like the Save On Foods roof) or the collapse of a bridge (like the Second Narrows collapse in 1956). Mr Brown finds all his assets wiped out merely defending the action even though he is found "not to be involved." If Mr Brown had established an Offshore Asset Protection Trust (on which he paid Canadian tax on any earnings), those assets would have been untouchable in the above situation, even if he was found liable for damages.


2. Director's Liabilities


Do you remember when all the directors resigned from CANADIAN AIRLINES? Well, one of the reasons that this happened was that the directors could be found personally liable for back wages for all employees of the airline and they could be found liable to Revenue Canada for up to two months of payroll deductions and unpaid corporation taxes if they did not take all necessary steps to make sure that the payments were made on time to Revenue Canada. (Payroll deductions are supposed to be held "in trust" for the government - the directors are held liable for failing to protect the trust accounts). Directors of public companies can buy insurance for this type of event, but in 31 years, I have never seen a director of a friend's company protected in this manner. People accept directorships with no thought to the possible total financial disaster to which they are exposing themselves. They do not even ask about director's liability insurance, let alone buy it.


Shareholder's Appropriation comes into the equation here as well. My own requirement to settle with Revenue Canada over my 1979, 80 and 81 tax returns (accounting looked after by Chartered accountants) has been caused mainly by having corporations in the way. No corporation, no tax bill!




Mr Smith is a businessman who spends 40 years of his life running his own logging company. He is also the sole director. Two of his 40 employees allow chemicals to escape into a fish stream. He is found personally responsible for the fish kill because, even though he was not there, it is found that he did not provide proper training in the handling of hazardous chemicals for his employees.


Workers Compensation Board


Different types of businesses have different WCB requirements. In this case, WCB rules state that employees must have a "tool box" safety meeting every two weeks. The directors of XYZ Company fail to have tool box safety meetings as required by law. When a worker (with more experience than the directors and who could have taught the BCIT electrical course) is electrocuted in an industrial accident, the directors are held personally liable for the award because they failed to hold the safety meetings.


3. Friendly Accidents


Ms James is a hairdresser and buys a duplex which increases dramatically in value. She takes her new profits and parlays the amount into $2,000,000. Someone is visiting her house FOR A PARTY AT WHICH SHE SERVES LIQUOR. A slightly inebriated guest decides to jump off the roof into the swimming pool. She pleads with him not to jump, but he does anyway. The guest is seriously injured when he misses the pool. He sues her and the courts award $3,000,000. Her insurance policy on the house only covers $1,000,000. She is broke. (This paraphrases a true Toronto story).


4. Car accidents


Seventy-five year old Mrs Jones is hit by a motorcyclist who is speeding when she turns in front of him. She is found liable for $3,000,000 of damage and her car insurance is only $1,000,000. She loses her home and everything else she ever had. (In this real life British Columbia incident with slightly different circumstances, a law firm was held liable for some $300,000 of damages for failure to represent the lady properly, and at last word, she has been allowed to live out her life in her house).


5. Hiring a worker around the house


Sarah and her husband want their yard cleaned up. They see an advertisement in the local paper for "two students with truck". They end up hiring these "self-employed" students to clean their back yard and cut down a fairly large tree and pile it up for firewood. The 19 year old kids are both seriously injured when the tree splits and a cable cuts a foot off one of the "kids" and breaks the other's back.


Sarah and John did not register as employers and pay Workers Compensation Premiums. (Actually to be clear, the premiums are not paid until the end of a pay period which may not have occurred yet at the time of the accident, but Sarah and John did have to be registered).


Sarah and John are held liable for lifetime support for both individuals at $30,000 a year, even though Sarah and her husband thought that the kids were self-employed. That's right, any individual or business who hires someone to work on their premises had better either check for WCB registration of the company hired or just be sure that they (themselves) are registered and build WCB premiums into their costs. (This should make anyone think twice about paying cash to "avoid the GST".)


6. Unauthorized use of a car, boat, motorcycle, etc.


You loan your car to a friend while his car is being fixed. He gets drunk and kills seven people in a car accident. You are responsible for all damages (could be $5,000,000 or more) and there is no insurance because the car is uninsured when driven by a drunk driver. Of course, the driver does not have to be a friend. The driver could be your spouse, your brother, your sister, your father, your mother, your child or even your daughter's boyfriend who is driving your car because - well - you know, just "because".


7. Etc.


Other lawsuits an Asset Protection Trust can protect against would be from divorce, joint ownership pitfalls, involvement in partnerships, something that happened even ten years ago, negligence, sexual harassment and any other novel legal theory someone might come up with.




How much do you have? Fees to get started seem to run from $1,000 to $50,000 U.S., depending upon what is involved. For instance one company's fees to open a Bahamas International Business Corporation and a couple of bank accounts are (in U.S. dollars):


Bahamas International Business Company $1,300

Opening Barclay's Bahamas Account (requires personal appearance) N/C

Opening Barclay's BWI Bank Account (min $500 US deposit) 200

Opening Euro Bank Cayman account (min $1,000 US deposit) 200

Federal Express Documents 30

Deluxe Corporate Book 79

Total 1,809


In practical terms, you can assume that it will cost you $5,000 to $10,000 to get up and running by the time you consult with a couple of professionals and maybe even take a plane trip.


Remember, any costs to establish such a corporation or trust are NOT deductible against Canadian taxable income in any manner. They are all CAPITAL in nature.


WHO DOES THESE THINGS? You can always talk to us of course and you will see lots of advertising for seminars in the paper.


The best "set-up" operation I have seen to date is that of Jerome Schneider in Vancouver. His Premier Corporate Services is highlighted in the March, 1996 CEN-TAPEDE. His "OFFSHORE Seminar" I attended in March, 96 was the best run seminar I have attended out of some 4,000 seminars I have been at or given myself. He specializes in Americans (as we do remember) and you can get hold of him at 900-1285 West Pender, Vancouver, V6E 4B1, (604) 682-4000 - Fax to (604) 682-7700. Read the March 96 CEN-TAPEDE for more details.


Fred Sharpe Fred Barrett

250-1075 West Georgia 101-1001 Broadway West

Vancouver, B.C., V6E 3C9 Vancouver, B.C., V6H 4B1

(604) 688-5533 Fax 688-1576 1-800-685-3964 Fax (407) 223-9103


Jeremy and Pamela Northcote, Attorneys McLean, McNally, Attorneys

Box 25, Britannic House 2001 Leeward Highway

Providenciales Providenciales

Turks and Caicos Islands, BWI Turks and Caicos Islands, BWI

(809) 946-4566 Fax (809) 946-4500 (809) 941-3334 Fax (809) 946-4484


Delaware Business Incorporators Inc Azaria Financial

Box 5722 1238-3422 Old Capital Trail

Wilmington, Delaware, 19808 Wilmington, Delaware, 19808

(302) 996-5819 Fax (800) 423-0423 (617) 327-1593 Fax (617) 327-1593


Safe Haven Consultants Mr William H Blankenship Jr

The Granary, 112 Lakeshore East World U.S.A. Ltd

Oakville, Ontario, L6J 6N2 101-2005 Old Greenbrier Road

(905) 338-7431 (800) 540-4785 Chesapeake, Virginia, USA, 23320

Fax (416) 844-6322 (804) 420-9611 Fax (804) 420-9645




The answer is likely no!, unless you have an active business operating offshore. If you are a Canadian and control a company, trust, or account in another country, that account, trust or company IS TAXABLE IN CANADA if it is owned or controlled by Canadians. I know that Doulis said (in his book TAKE YOUR MONEY AND RUN), that you can establish these offshore operations and hide the ownership by tearing up the bearer bonds, etc., but IN MY OPINION, that is merely subterfuge and fraud. If you control it, the offshore entity is taxable in Canada on its own. Your failure to report and account can lead you to massive penalties in the future. Tax Authorities have long memories and long arms as the next two actual pages show. Page 136's $194,000 US example is from Alaska and deals with 1986, 87 and 88. The first time our client heard of it was in January, 1995. Page 135's $19,000 US is from Las Vegas (everyone is/was a Canadian Resident at the time). The first time our client heard about it was in March, 1995 for the years 1988 and 89. OFFSHORE Tax Shelters are like AIDS, the problems show up 6, 7 or 8 years after the good times.


Canada has just introduced legislation and penalties for Canadians with offshore investments. The new form which is effective from Jan 1996 will have to filed with the 1996 income tax return by any Canadian with investments of over $100,000 outside of Canada. Failure to file the form will carry a fine of $500 a month to a maximum of $24,000, at which time, the penalty increases to 10% of the value of the property outside Canada AND any accountant or lawyer or advisor who has participated in the "non-reporting" is liable for the same fine as his or her client.


In her recent article in Maclean's Magazine, Stevie Cameron pointed out prominent law firms such as Miller Thomson in Toronto whose tax specialists refuse to form FAPTs because of their interpretation of the tax law and their suspicion that they will only be used for tax evasion.




A Foreign asset Protection Trust is a good idea for the wealthy and people who are subject to lawsuits. Establish your FAPT now BEFORE you have problems that would make it illegal. But, don't get carried away with tax EVASION. File your returns and report any profits to Canada. Your money is protected. Revenue Canada can't touch it. A creditor can't touch it. AND, you are still in Canada and can use our very valuable medical system, our roads, our schools and not have to sneak around to make it look like you are not a Canadian resident.




As I write this I have just received a call from a "70ish" lady with a property "just across the U.S. border." The property has been in her family forever and she has spent years of her life there. She heard me being interviewed by Rafe Mair on CKNW on Sept 13, 95 and phoned B C Medical to check on her situation. An unidentified clerk assured her that she was fine and would be covered because she was so close to the border that if anything went wrong she would just be taken to a Canadian hospital. Last June, hubby had a heart attack at their U.S. cabin. At the time, some sort of border dispute would not allow a U.S. ambulance into Canada and because of this dispute, he was taken to a U.S. Hospital which was about 17 miles further away than the closest Canadian hospital. He was in the American hospital for just TWO days.


B C Medical paid $600 of the doctor's $4,000 bill and she has an unpaid $48,000 US hospital bill. If you or someone you know is spending ANY time in the U.S., make sure that they are covered by a total medical plan and if they are not covered, do not let them go south. The same thing happened to my Mother In Law (reported in Dec, 91 Reader's Digest).


The easiest way to cover yourself is to have a Gold VISA or MASTERCARD or AMERICAN EXPRESS CARD. Most of these cards have out of country travel insurance built in. I think the best is the CIBC Gold VISA Card Plan but that is today and could change tomorrow. (My 1992 BORDER BOOK suggested that the ROYAL Gold VISA Card was best. Some have the coverage included with your annual fee. Other cards require specific application and payment for the coverage. Check your card. Please note that most cards no longer cover seniors.


If you do not have a gold card and are a traveling to the US for a short period, you can usually buy adequate insurance from the Auto Club in your area, or your local travel agent will have a John Ingles policy which is quite adequate.


If you are a senior and/or a "SNOWBIRD" or someone with a seasonal home in the U.S., your temporary policy or your travel plan may not be adequate. Strictly speaking, you are not "traveling". If this is your position, get hold of the MEDIPAC INTERNATIONAL PLAN of the CANADIAN SNOWBIRDS ASSOCIATION at 1 (800) 563-5104:


The above is an example of going after 1988 and 1989 returns 7 years later. The next page comes from Alaska and goes after a Vancouver resident back to 1986. For both individuals, this is their first correspondence from the IRS.

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