2. CANADA: BUSINESS IMMIGRATION CATEGORY
I) ENTREPRENEUR CATEGORY
II) INVESTOR CATEGORY
While Canada does not have an instant citizenship program,
it does allow those who have been permanent residents for
three years to acquire a Canadian passport. Being one of
the most treasured travel documents in the world, the Canadian
passport provides visa-free travel to most countries and
allows the holder to take advantage of the North American
Free Trade Agreement to live and work in the United States.
Finally, as a result of the recent decline in the Canadian
dollar, residents can enjoy an excellent lifestyle, with
all the infrastructure of living in the United States, at
only two thirds of the cost.
In looking at Canada as a possible destination, there are
two main considerations; qualifying for permanent residence
and tax planning.
ABILITY TO QUALITY FOR PERMANENT RESIDENCE
There are several paths leading to Permanent Residence
in Canada. the rights, privileges, and obligations of the
status received are the same, no matter which category the
application is made under.
Business Immigration Program
Canada's Business Immigration Program's main objective is
to encourage and facilitate the immigration of experienced
business people. In order to make a successful application
under the Business Immigration Program, a person must demonstrate
that they possess certain asset levels and business experience.
The two categories available under the Business Immigration
Program are the Entrepreneur and the Investor.
i) Entrepreneur Category
An Entrepreneur applicant is someone who has the ability
to establish, purchase, or make a substantial investment
in a business venture in Canada. This venture, which the
person will manage on an active basis, must result in the
creation or maintenance of employment for one or more Canadians.
The Entrepreneur category accommodates experienced business
people whose background is oriented towards the management
of small to medium sized business ventures. Although neither
the Act nor the Regulations stipulate exact business investment
capital amounts, a minimum net worth of $250,000 USD is
usually required to qualify as an Entrepreneur. The bulk
of this net worth must be easily transferable to Canada,
as a minimum of $150,000 to $200,000 USD is required to
provide for capital for the business venture.
In the past, some Entrepreneur applicants who made their
investment prior to landing received unconditional visas.
It is now the policy of Canadian Immigration officials to
apply the "terms and conditions" mentioned previously
to all Entrepreneurs (and accompanying dependants). These
terms and conditions must be met within two years of arriving
in Canada. Entrepreneur Applicants also have the additional
condition of continually reporting to officials during the
two-year period. Conditional visas are designed to provide
all Entrepreneur applicants a chance to establish in Canada
and to consider a number of investments. Once an Entrepreneur
applicant has fulfilled the terms and conditions, he may
then apply to have them removed. However, if the terms and
conditions are not met the Entrepreneur applicant and his
family may be stripped of their Permanent Residence status
and deported. The Entrepreneur condition to be "full-time
actively managing only the Canadian business" may be
unattractive to applicants who wish to spend a significant
amount of time outside of Canada.
If you have any specific questions send email to mmclellan@GlobalRelocate.com
ii)The Investor Category
The Investor
category is designed for the high net worth businessperson who wishes
to invest in a larger business venture but is pre-pared
to rely on others to oversee his investment. The Investor
category allows for an investment by a businessperson
who possesses a net worth of approximately $500,000 USD
and makes a substantial investment in an approved project.
While the minimum investment period is five years, the
minimum investment amount is approximately $300,000 USD
The actual out-of-pocket investment may be reduced to
approximately $90,000 USD by using available financing
options. An Investor applicant does not need to live
in the province in which he makes his investment. Nor
does he need to become actively involved in the management
of the business venture to be issued an unconditional
Permanent Resident Visa. This avoids any problems associated
with "terms and conditions".
Once permanent residence is secured, an immigrant then
can apply for naturalized Canadian citizenship after
three years of residence.
If you have any specific questions send email to mmclellan@GlobalRelocate.com
CANADIAN TAX ISSUES DURING AND AFTER THREE-YEAR NATURALIZATION
PERIOD
Tax planning for new Permanent Residents of Canada is
often a critical part of the process. If appropriate steps
are taken, the impact of Canadian taxation can be legally
minimized or effectively eliminated. The two fundamental
concepts basic to Canadian tax planning are as follows:
a) Canada taxes its residents on their worldwide income
using
b) Canadian Income tax rules and rates. Canada does not
tax Canadian Citizens if they are not resident in Canada.
c) Canada taxes non-residents of Canada (including Canadian
Citizens who are not resident in Canada) only on:
i) any employment income earned in Canada;
ii) any business income earned from carrying on a business
in Canada;
iii) capital gains primarily attributable to Canadian real
estate and shares in private Canadian companies; and
iv) certain types of Canadian source investment income such
as interest, rents, dividends and royalties. This is done
by the imposition of a withholding tax at a statutory rate
of twenty-five percent, which may be reduced under applicable
income tax agreements.
A Canadian citizen who departs Canada and becomes a "non-resident"
for tax purposes will no longer be subject to Canadian taxation
other than as described above. Neither the Canadian federal
government nor any of its provincial governments impose
any estate taxes or succession duties on death.
The income tax imposed on Canadian taxpayers is computed
at a personal level. The Income Tax Act (Canada) provides
for all the usual deductions and credits recognized in most
industrial countries. Business losses and carry forwards
are allowed in calculating "taxable income". Once
taxable income has been determined, the "marginal tax
rate" will apply. The tax rates are progressive with
maximum rates varying from province to province. Capital
gains are taxed at only seventy-five percent of full rates
and dividends received from Canadian corporations by individuals
receive favor-able treatment. However, the maximum combined
federal-provincial personal income tax rates generally range
from fifty percent to fifty-eight percent depending on the
province of residence at the end of the calendar year.
The Income Tax Act does allow an immigrant
to shelter non-Canadian source income and capital gain for
a period of up to sixty months after their arrival in Canada.
The sixty-month period commences on January 1 of the calendar
year during which the taxpayer becomes resident in Canada
for tax purposes. Typically, income/capital gain-producing
assets that are situated outside of Canada are transferred
into an "offshore trust". A non-resident financial
institution is used as trustee. All income and capital gains
attributable to such assets that are earned by the trust,
escape Canadian tax during the period that the individual
is a Permanent Resident of Canada and is in the qualification
period of Canadian Citizenship. This "tax holiday"
expires at the end of the sixty-month period. If the trust
continues in place thereafter and the person remains resident
in Canada for tax purposes, the trust itself will become
a resident taxpayer and liable for Canadian taxation on
its worldwide income.
If, however, the Permanent Resident obtains
Canadian Citizenship within the five-year tax holiday window
and then departs Canada after obtaining Canadian Citizenship,
the income and capital gain produced by the offshore trust
will never be taxed by the Canadian government. Those who
choose to remain resident in Canada as Canadian residents
and citizens beyond the five year period, may choose to
reacquire the assets from the offshore trust at that point
for a "stepped up" tax basis. They will then have
a new basis equal to the fair market value of the assets
at the end of the five-year period. The alternative is that
they may wish to explore one of several other strategies
to extend the "tax holiday" period.
In conclusion, Canada is a very attractive destination.
One must be aware that it is a potentially high tax country
where improper or absent tax advice can result in high worldwide
tax liability. As Canadian Immigration officials are neither
qualified nor obligated to provide you with any advice relating
to the structuring of your financial or tax affairs, I recommend
that you receive proper written legal advice. Along with
tax structuring, this advice should also set out your ability
to qualify for residence, and help you set up a strategy
to ensure that you maintain your permanent residence and
qualify for citizenship. If properly done, establishing
residence and domicile in Canada may be a more appropriate
solution for a client who for business or family reasons
cannot live in an island tax haven. It is not just for clean
air, mountains and efficiency that Canada can be called
"The Switzerland of the North".
David S. Lesperance Barrister & Solicitor
©COPYRIGHT 1999-2007
DAVID S. LESPERANCE
