A study in Canada has shown that job creation increases and the economy improve as the number of immigrants swells. Immigrants are considered as better educated than Canadians, when the government introduced its point system in the year 1967, the selection process favoring those with marketable skills. Actually, Canada is seeing signs of worker shortages in several professions – including engineers, doctors, nurses and many more occupations. Encouraging immigration to Canada could be a very effective way of helping to ease the shortage. There are many benefits that appeals the immigrants and one of those is Canada’s Income Tax Act. It allows fresh immigrants to benefit from a five year tax holiday upon their arrival, which is particularly beneficial to individuals moving to Canada who have a high net worth and retain assets outside of Canada.
Newcomers to Canada are normally subject to Canadian income taxes on their worldwide income upon their arrival. However, certain provisions in the Act allow for the creation of what is known as an immigration trust. This trust holds the newcomers foreign assets for investment. If properly-structured, any foreign earned income and capital gains earned from the assets held in this trust are exempt from taxation. It is possible for immigrants to set up an immigration trust and to transfer their foreign assets to that trust before arriving in Canada. As an example, take an individual who plans to reside in Canada and who owns property that generates rental income in his or her country of origin. This individual can then establish an offshore Immigration Trust and transfer the property to that trust. The income earned from the rental of this property will not be taxable by Canadian authorities for a period of sixty months, or five years, from the date the individual becomes a resident of Canada.
Because of this five-year tax holiday, it is possible for an immigrant to acquire Canadian citizenship in just three years, and then choose to become a non-resident for Canadian tax purposes. In this manner, it is possible for foreign earned income and capital gains to never at any point fall into the Canadian tax net. People are attracted to Canada for many reasons: stable political climate, safety and security, free 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. 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.
