Off-shore investment trust can cut Canadian tax
Q. I will be emigrating to Canada next year. I hear Canada has a high tax rate. What can I do to minimise Canadian tax liability on Hong Kong investments? A. The highest combined federal and provincial tax rate in Canada exceeds 50 per cent in most provinces.
An individual reaches the top tax bracket with taxable income over about C$63,000 (about HK$348,390). These tax rates obviously are much higher than Hong Kong's.
The tax net also is much wider than that in Hong Kong. Canada levies tax on its residents on a world-wide income basis, and also taxes capital gains, dividends and interest.
On the day you become a Canadian resident, you will be deemed to have acquired your capital properties, other than 'taxable Canadian properties' at fair market value.
Assets which will be subject to this deemed acquisition rule include Hong Kong stocks and Hong Kong real estate.
If you sell these assets after you have become a Canadian resident, the taxable capital gain which will be liable for Canadian tax will be measured as 75 per cent of the difference between the net sales proceeds and the fair market value of those assets when you arrived in Canada.
This will ensure that any gains accrued before you became a Canadian resident will not be liable for Canadian tax. You should obtain a valuation of your assets on the day you arrive in Canada.
Investment income earned by a Canadian resident will attract Canadian tax. The most effective way to minimise that tax expense is to have the investments transferred to an off-shore trust.
If this trust is properly structured. the investment income earned in the trust for the first 60 months will not be subject to Canadian income taxes, under existing legislation.