With the pending tax proposal from Finance Minister Morneau, Canadians may need a tax haven.
The US is the most commonly overlooked tax haven opportunity for Canadians. Throughout the book A Canadian’s Best Tax Haven: The US – Take Your Money and DRIVE!, this phrase is used to describe the laypersons definition of an ideal Tax Haven:
“An ideal tax haven is any country to which Canadians can easily move to achieve a preferred lifestyle whether it is better climate, lower taxes, or combination of both. This country will provide a lower overall individual cost of living by taking into consideration all factors such as food, accommodation, travel and including income tax, which will be less or substantially less than their current Canadian lifestyle costs. This country will still allow them to have the benefit of all of their Canadian family and social relationships while living in their preferred residence.”
A very important factor in choosing a place to live, is to find one which allows you to improve upon your existing relationships to the extent desired and to live your preferred lifestyle.
This ease of travel to and from the US should not be underestimated. One of the biggest complaints Canadians have going to one of the traditional tax haven islands is that in most cases their only options are to fly with sometimes more than one connecting flight on a puddle-jumper aircraft. These limited travel options are exacerbated when there’s a medical emergency, particularly if the patient’s not able to travel by air to the US or to Canada to get potentially lifesaving medical assistance.
The Disadvantages of Traditional Tax Havens
The following list discusses some of the disadvantages of traditional tax havens:
- Any personal relationships with family or friends are bound to suffer with the traditional tax-haven strategy, because of the geography of living on an island in the middle of nowhere, or bouncing around from port to port on a yacht attempting to keep ahead of the proverbial tax man.
- The assumption that there are no taxes in offshore jurisdictions is a myth.
- Canadian dividends and trust income originating in Canada face Canadian withholding taxes at 25 percent.
- There is a 30 percent withholding tax from the IRS for US-sourced dividends and similar income.
- Switzerland takes 35 percent withholding on trust income and dividends for residents of tax havens with no treaty protection.
- Canada’s Old Age Security (OAS) is subject to the 100 percent claw-back tax rate and/or nonresident withholding tax of 25 percent that can reduce this pension to zero for both spouses. This one tax alone can produce a potential loss of more than $13,000 a year for a couple.
- Canada Pension Plan (CPP) and other pensions are subject to a 25 percent nonresident withholding tax.
- RRSP and RRIF income as a nonresident is also subject to the 25 percent nonresident withholding.
- Before departing Canada, you are subject to a departure or exit tax on the day you leave Canada on certain taxable Canadian assets that have unrealized capital gains and yet-to-be-taxed capital gains. Although these taxes can be deferred by giving the CRA suitable collateral, there is a great deal of paperwork and hassle to deal with these exit taxes effectively.
- Food and housing costs on islands are higher than in the US or Canada. Also, the selection and availability of foods and other consumer goods are much more limited. This cost-of-living increase reduces and often negates potential tax savings of traditional tax havens and the lack of choice noticeably reduces your lifestyle enjoyment.
- Simple things such as setting up bank accounts and credit cards become surprisingly complex when trying to do it through an offshore tax haven.
To look into reducing your taxes and improving your cross-border lifestyle, click this link: http://www.keatsconnelly.com/contact-us/