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With average tax rates of 44% on most income and 22% on capital gains, Canada is one of the highest tax jurisdictions in the world. However the Canadian Income Act, contains provisions that facilitate an immigrant's transition into the Canadian Tax System and provides them with an opportunity to reorganize their affairs in an efficient and non costly manner.
A commonly used planning technique for immigrants to Canada who have significant wealth is the creation of an "immigration trust structure" consisting of a fully discretionary trust and an investment company in a low tax jurisdiction.
An "immigration trust structure" will be funded exclusively by the person who has immigrated to Canada and who has not previously been resident of Canada during his or her lifetime. Immigration trusts are typically set up for the benefit of the immigrant or members of the immigrant's family.
Under Canadian law, the "immigration trust structure" enjoys a 60-month exemption from Canadian tax on its income including any capital gains. The trust will be exempt from income tax until the taxation year that the immigrant has been resident in Canada for a total of 60 months.
For example, where a person establishes a trust and becomes a resident of Canada in September 2006, the trust would not be subject to Canadian income tax until September 2011.
In addition to the saving of Canadian tax, an "immigration trust structure" can also provide a number of other benefits: ensure privacy and confidentiality with respect to financial information, reduce probate fees paid by the immigrant's estate on death. Moreover the immigrant settler can appoint a protector to ensure the trust property is handled in accordance with his or her wishes.
For more information relating to Canadian Immigration Trusts please contact our London Office.
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