New Canadians Need Help Navigating Canada’s Tricky Tax Laws

3-newThough tax season may be over for the majority of Canadians, the worry and confusion that the Canadian tax system brings for many new residents continues. Faced with very different tax laws and rules than in their home countries, immigrants and new Canadians often find it challenging to adjust to a new and confusing system.

Jonathan Garbutt, a barrister and solicitor, practices Canadian income tax law and has worked with many international companies and families, especially those with a high net-worth, in their dealings with the Canadian tax system.

A great difficulty many new Canadians face is the drastic change from the tax laws in their home countries to that of Canada. Many are coming from what Garbutt calls, “low to no compliance jurisdictions,” where it’s often safer for people to hide their money from the government because they could face the risk of intimidation, robbery or even kidnapping if their true wealth was known. It can be hard to adjust to a country like Canada where people are, for the most part, open and honest with the government about their income, and the government is honest, competent and professional in its tax administration.

Due to the fact that many new Canadians have a large amount of wealth, navigating tax laws can get complex. “My ancestors arrived in Canada with a work ethic and one pair of boots…whereas people are arriving off the boat these days and it’s their boat,” jokes Garbutt. Many of these people are fearful they will have to give up a lot of their wealth to taxes and this is where Garbutt provides advice to his clients.

Until recently, the “immigration trust” was a special tax exemption available to new Canadian residents; it served as a huge incentive for successful people to immigrate to Canada. The trust allowed immigrants to place their non-Canadian assets in an offshore trust fund which could not be taxed for the new residents’ first five years in Canada. The Canadian government removed this trust in 2014, which has affected the country’s ability to attract highly successful individuals and their families.

Garbutt believes there are ways to work around the loss of the immigration trust and he tries to set up his clients for success as best as possible within the parameters of Canadian tax law. One popular method, which is used for immigrants in the United States, is placing funds in an offshore, domestically compliant life insurance policy to reduce taxes.

An issue that is common for new Canadians is, often, one person or a small portion of the family is able to come to the country initially. As a result, the new Canadians are perceived by the family as being safe and may put “family money” in their hands. In turn, if it is held in the name of a Canadian resident, this makes the family wealth taxable in Canada. These new Canadians, often only because they do not know the rules, fail to report these assets to the Canada Revenue Agency on the assumption the funds do not really belong to them. However, by doing so, they have put themselves and the family wealth in jeopardy of severe penalties.

Yet, having family wealth outside of Canada also offers an opportunity to new Canadians. With a little planning, the family can both protect their assets globally and the Canadian residents can receive funds from their families tax-free on an ongoing basis. Using what is referred to in the business as a “granny trust” or “family trust” in a safe third country, a country that is neither Canada nor their home country, the new Canadians with wealthy families can remain in Canada and protect the family’s wealth. “There’s no tax on

gifts, this is just the gift that keeps on giving…they’re just receiving gifts from overseas for an extended period of time,” said Garbutt.

For more information on Canadian tax laws and their relevance to new Canadians, Garbutt has recently drafted a white paper available on his website

By: Cassidy Scott

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