People are attracted to Canada for many reasons: a stable political climate, safety and security, universal health care, good job opportunities, excellent educational facilities, clean air and a well deserved reputation for quality of life are just some of them.
Tax benefits, however, are not usually included on this list. They should be.
To begin with, the following principles of taxation apply:
- Canada taxes individuals on the basis of their residence and not their citizenship. A Canadian permanent resident may apply for Canadian citizenship and a Canadian passport after three years (soon to be four years).
- Canada taxes its residents on their worldwide income, but allows offshore trusts for new permanent residents.
- Canadian citizens who are non-residents of Canada do not pay Canadian tax on their worldwide income. Non-residents pay Canadian tax only on certain Canadian-sourced income and capital gain.
- There are no estate duties or succession duties in Canada.
New Canadian permanent residents can significantly reduce, or even eliminate, Canadian taxes with proper planning in advance of their arrival. They are permitted to establish a properly structured offshore trust to shelter non-Canadian sourced income and capital gain for up to five years after their arrival in Canada. During this five-year tax holiday the individual can acquire Canadian citizenship and choose to become a non-resident for Canadian tax purposes. In this manner the income and capital gain generated by the trust never falls into the Canadian tax net.
Taken all together, Canada is the right choice — even from a taxation point of view.