Many immigrants to Canada will ultimately inherit substantial wealth from family members who did not follow them to this country..
Usually, those new Canadians are not aware of the Canadian income tax implications of those future inheritances and the fact that careful planning in that regard can often reap rewards, in terms of savings in future Canadian taxes, that far exceed any related costs.
Firstly, the good news: inheritances, whether from non-resident relatives or from Canadians are never taxable income.
However, the income and capital gains earned from such inherited assets (whether in their original form, or reinvested in other assets) will be subject to tax in Canada. Canadian residents are subject to tax on their world income from all sources. This will be the case even if such income is not remitted to Canada.
Nevertheless, there is one perfectly legal way in which taxation on such income may be avoided. This can be achieved is through the use of a non-resident trust (generally established in a zero tax jurisdiction). With proper planning, this will allow Canadian tax on any related income and capital gains to be legally avoided even if the income produced is remitted to Canada.
Many immigrants to Canada have heard of the use of such an offshore trust in connection with sheltering offshore investment income earned during the first sixty months of residency-that is often called an “immigrant trust”. As a result of amendments that were released in 2014, this is no longer available. However, what is envisioned here is often called an “inheritance trust”. Though far less known, it is actually a much more valuable tax planning tool than an immigrant trust ever was because it usefulness is not limited to 60 months. Rather, it can keep saving the Canadian beneficiaries tax for many generations.
The key here is that no Canadian resident can contribute property to the trust. If one does, then the trust will be treated as a Canadian resident and subject to Canadian tax. Accordingly, it is essential that the trust is formed pursuant to the will of the deceased family member-that is where the advanced planning comes in. If the Canadian beneficiary inherits the property and then contributes that property to the trust that will not work-the trust would be subject to Canadian tax and the Canadian contributor would be jointly liable for any tax.
Other considerations:
(1) It is essential that the residency of the trust should not be in Canada based on “central management and control”. If the trustees are not Canadian residents, but it is actually managed from Canada, in terms of high-level decision making, it will not work.
(2) Care should be taken that the income (including taxable capital gains) earned by the trust is not remitted to the beneficiary in the same year that it is realized-if funds are needed, they should clearly be derived from sources that are either the original trust capital, or capitalized income or gains from prior years.
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Michael I. Atlas, CPA,CA,TEP,CPA(ILL)
Michael Atlas is the author of this article, and can provide personalized advice to you on foreign inheritance tax issues for a very reasonable fee. Wheverever you are, you can get his advice!
Contact him now! For your convenience, his homepage is reproduced below.
Phone (Office): 416-860-9175
Mobile (After-hours): 416-949-7111
Email: matlas@TaxCA.com
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CANADA-BASED INTERNATIONAL TAX CONSULTING FOR CLIENTS WORLDWIDE
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Joseph Blow, CPA, Average Accountant
Contrary to what most people think, very few Canadian accountants are real tax experts. Regardless of whether they have a designation (like CA,CGA,CMA, or CPA) or not, the vast majority have only a general knowledge of tax law and practice. That is fine for preparing tax returns, or giving advice on basic routine issues. However, when it comes to complex, unusual matters, very few have what it takes to give proper advice. When it comes to international matters, even most accountants who specialize in tax don’t have the ability, and go to an expert like Michael Atlas.
IN LESS THAN 5 MINUTUES HE CAN USUALLY HELP!
Michael Atlas, CPA,CA,CPA (ILL), TEP
That’s right, in less than five minutes from the time that Michael Atlas gets your email message or phone call, he can typically suggest an approach to help with a high-level international tax problem!
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Phone (Office): 416-860-9175
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Email: matlas@TaxCA.com
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All information provided is TOTALLY CONFIDENTIAL.
YOU NEVER HAVE TO LEAVE YOUR OFFICE!
Wherever you are in the world, you can get complete advice from Michael Atlas without having to leave your home or office.
He has been providing complete advice to clients worldwide via email for over 25 years! Phone or Skype works fine too! However, if you happen to be in Toronto, and want to meet, no problem!
WANT TO REMAIN ANONOMOUS?-NO PROBLEM!
All information provided to Michael Atlas remains strictly confidential, as is consistent with the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of Ontario.
However, even with that, some clients wish to remain anonomous. No problem! Michael Atlas can give advice to Mr. or Ms. “X”-he does not need to have a real name. He can just give advice based on hypothetical facts as presented to him.
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Michael Atlas provides FAST, imaginative and creative advice in connection with the following, as well as many, many more areas:
- Emigration from Canada-guidance on saying “goodbye” to Canadian taxes
- Immigration to Canada-planning to minimize exposure to Canadian taxes
- Returning Canadian expats-what to do about assets accumulated offshore
- Offshore trusts-when can you use them and when you cannot
- Offshore corporations-you can save a fortune in the right situation
- International business structures-proper planning is the key to saving taxes
- Using tax treaties-they can be your best friend!
- Planning foreign income-proper planning is the key!
- Tax disputes and objections– he has a great track record in beating the CRA!
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THE ONE OF A KIND CANADIAN INTERNATIONAL TAX BLOG
Michael Atlas authors a unique Blog that is totally devoted to Canadian international tax issues. It is the only one of its kind in the world! It now has 108 original articles.
Thousands of readers access its pages every month.
You may read all the pages of the Canadian International Tax Blog through the Blog page of this site.
THE OUTSTANDING CANADIAN BOOK ON NON-RESIDENT TAX
Michael Atlas is widely known across Canada for being the author of the leading book Canadian Taxation of Non-Residents, which is published by Wolters Kluwer (formerly CCH Canadian Ltd). This highly popular book, which is now in its 5th Edition, has been regularly used as a reference by accountants and lawyers in all parts of Canada for over 20 years! (To learn more about, or order, this book, click here.)
He can advise on all issues relating to non-resident taxation, including how to become a non-resident; all the implications and requirements; dealing with Canadian source income; and what to do if a Canadian expat returns.
FAST ADVICE ON DOMESTIC TAX PLANNING TOO
Michael Atlas can also provide FAST advice on a wide-range of high-level domestic tax issues, including
- Estate planning
- Real estate
- General corporate and business tax issues
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Phone (Office): 416-860-9175
Mobile (After-hours): 416-949-7111
Email: matlas@TaxCA.com
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All information provided is TOTALLY CONFIDENTIAL.
