4. CANADA: FAMILY SPONSORSHIP
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.
Family Sponsorship
Certain Canadian citizens and Permanent Residents are entitled
to "sponsor" certain foreign relatives for Permanent
Residence in Canada. Relatives who can be sponsored under
the Family category include: fiancées/spouses, parents,
grandparents, all un-married children up to the age of 19,
certain unmarried children over the age of 19, and grand-children
(note: grandchildren can only be sponsored if they are orphaned
and the grand-parents have custody of the children in question).
To qualify as a sponsor it is necessary to be over the age
of 18, to be resident in Canada, and to have proof of income
sufficient to look after all of those being sponsored.
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
