- Category: Preparing for Canada
- Published: Friday, 07 October 2016 20:05
- Hits: 1909
Upon receiving an immigrant visa, and preparing for a life in Canada, a person must consider three major things:
- Canadian Customs,
- Canadian Taxation, and
- Retention of Landed Immigrant Status.
Individuals entering Canada as permanent residents are entitled to bring into Canada all personal and household effects free of duty.
At the time of landing, immigrants should provide a duplicate list of all personal and household effects which they are bringing into Canada or intend to bring into Canada in the future.
The list should set out specific information about each of the personal effects to be brought into Canada including the make, model, serial number and a reasonably accurate estimate of the value of the good.
The immigrant should prepare two lists - goods in possession of the immigrant at the time of landing and goods to follow. The customs officer will note on the record of landing that there are 'goods to follow". This will enable the immigrant to bring the specified goods into Canada duty-free at any time after landing.
The goods which the immigrant may bring into Canada are goods which are imported for the immigrant's household and personal use.
In order for the goods to be duty-free, the immigrant must be prepared to demonstrate that the goods were in the "ownership, possession and use" of the immigrant prior to landing.
Goods acquired by the immigrant while in transit to Canada are duty-free provided that they meet the requirements of ownership, possession and use.
Goods imported to Canada duty-free and sold thereafter within a period of 12 months from the date of importation are subject to ordinary duties.
Wedding gifts are exempt from the "use" requirement if they have been owned and possessed by the immigrant prior to admission to Canada and provided that the marriage occurred within the three-month period prior to arrival in Canada or within the three month period after landing.
Immigrants landing in Canada from countries with blocked currencies (i.e., a limitation on funds which may be removed at any particular time) may acquire household goods with the blocked funds and ship the goods to Canada, provided they do so within a period of three years of landing and make arrangements with Canada Customs at the time of entry.
Immigrants intending to import motor vehicles to Canada should contact the following office in order to ensure that the motor vehicle complies with Canadian Motor Vehicle Safety Standards and that the vehicle is eligible for entry to Canada:
Registrar of Imported Vehicles, P.O. Box 217, Pickering, Ontario, Canada L1V 2R4, Telephone: 1-800-333-0558 (Canada or U.S.), or Canadian Taxation
Tax planning is essential to the landing process, particularly if the applicant possesses a substantial net worth. This is because a person's tax liability is determined by residency in Canada. Canadian residents are subject to taxation on the world income from all sources. An immigrant is required to file an income tax return for the taxation year of landing, and thereafter unless the person ceases to be a resident of Canada.
Residence for Tax Purposes
"Residence" is not defined in the Income Tax Act. Revenue Canada considers the following factors in determining whether a person is a resident for income tax purposes:
- the individual "sojourned" in Canada for a cumulative period of 183 days or more in the course of a taxation year (section 250(1) of the Income Tax Act;
- the individual (who has previously been a resident of Canada) is absent from Canada for a period of less than 24 months, unless all residential ties have been severed with Canada (ie. no dwelling place);
- the individual regularly, normally, or customarily resides in Canada in a settled routine; or
- the individual established residential ties in Canada such as a dwelling place, spouse, and dependents, personal and real property and social ties.
There are additional indices of residence for tax purposes:
- habitual visits to Canada;
- location of fixed and liquid assets;
- location of personal belongings, such as clothing;
- location of immediate family members;
- mailing address, telephone listings, driver's license, newspaper delivery in Canada, etc;
- ongoing participation in a Canadian business;
- will and burial plot in Canada; and
- membership in Canadian social, community, religious or other organization.
Persons who have landed in Canada are considered residents of Canada. In order to be considered a non-resident for tax purposes, an immigrant would be required to be absent from Canada for a period in excess of 24 months. An immigrant who is absent from Canada for 24 months would be perceived to have abandoned Canada as the place of permanent residence unless he or she is in possession of a valid returning resident permit and consequently would be in jeopardy of losing landed immigrant status.
Income Tax Rates
Canada has a progressive income tax system. The more income you have the higher the percentage of tax you must pay. The federal government officially lowered income tax rates as of January 1, 2001 in a series of reductions expected to cost Ottawa about $100 billion over the next five years.
There are four Canadian income tax levels for taxpayers. The rate for 2001 is:
- 16% on income up to $30,754;
- 22% on income between $30,755 and $61,509;
- 26% on income between $61,510 and $100,000; and
- 29% on income over $100,000.
Canadian taxpayers must also pay provincial income tax which is determined as a percentage of Basic Federal Tax. Provincial income tax is typically approximately 50 percent of the Basic Federal Tax, although the amount varies from province to province.
The corporate tax rate is 27%. Ottawa is promising to lower it by six percentage points over the next three years.
Deemed Disposition Rule
At the time of landing, an immigrant's worldwide assets and property become subject to Canadian taxation. The immigrant is deemed to have disposed of all assets at fair market value immediately prior to landing and to have immediately required those same assets immediately after landing. Any unrealized gain that accrues on an immigrant's property prior to landing will not be taxable in Canada. Any capital losses or capital against on such property after the date of landing will be relevant for taxation purposes.
This Deemed Disposition Rule results in the following:
- Prior to landing there is no Canadian tax consequences for the sale of property.
- Any foreign property sole after landing will be taxable at fair market value.
- 75% of all capital gains are taxable in Canada.
Disposal of Principal Residence Abroad
If the immigrant disposes of his or her principal residence abroad, after landing (and becomes a Canadian resident for taxation purposes), the taxation burden on any capital gains realized on the principle residence will be subject to a tax relief benefit.
The quantification of the tax relief relating to "principal residence" is calculated on the basis of the number of years that the immigrant has been resident in Canada and has simultaneously maintained the home as his or her principal residence. The period of time the immigrant owned the home prior to becoming a resident of Canada is quantified under the Income Tax Act.
Consequently, new immigrants selling their principal residence abroad will not receive a substantial taxation benefit under this section.
Property Automatically Subject to Canadian Taxation
The following properties are exempt from the deeming provision at the time of landing because they are automatically subject to Canadian taxation:
- Canadian property that would have been taxed has the person been a resident in Canada in the year prior to landing;
- inventory in a Canadian business belonging to the immigrant prior to landing;
- capital property of a business belonging to the immigrant prior to landing;
- property which the immigrant treated as taxable Canadian property during the last time the individual ceased to be a resident of Canada; and
- rights to purchase shares (i.e. stock options or purchase plans) of the capital stock of a Canadian corporation.
Foreign Reporting Rules
All Canadian residents are required to report their foreign assets and income for tax purposes.
The foreign reporting rules are as follows:
- file, on a yearly basis, a detailed "information return" for each foreign affiliate (foreign company in which the immigrant possesses an interest of 10 percent or more) and each nonresident trust (within the meaning of the Income Tax Act);
- report on foreign property, where such property exceeds $100,000 CDN at any time in the course of the taxable year (whether cumulatively or individually), including
o tangible property outside of Canada, whether or not it is income producing (i.e. real estate and articles),
o funds or "intangible" property outside of Canada (e.g. stocks, bank accounts, shares whether in foreign or non-resident corporations),
o interests in nonresident trusts (i.e. foreign mutual funds but not retirement savings trusts and pension plans), and
o options or "conversions" on a foreign property;
- file a detailed information return if the immigrant qualifies under one or more of the following three categories:
o immigrants who have transferred or loaned property to a foreign trust or corporation which would have been considered a foreign "affiliate" of the trust if the trust were Canadian;
o immigrants who are partners of an entity making a transfer or loan under (a), above; and/or
o immigrants who control a foreign affiliate which made a transfer or loan under (a), above; and
- file a detailed information return in the taxation year that an immigrant receives a distribution of property from or becomes indebted to a foreign trust in which the immigrant possesses an interest (unless previously disclosed on one of the above information returns).
Failure to comply with foreign reporting rules may result in the following penalties (for each year the immigrant fails to file):
- $25 per day to a maximum of $2,500 for failure to file within the deadline;
- where failure to file involves gross negligence or willfulness, $500 per month not exceeding 24 months or $12,000;
- where a demand was made by Revenue Canada and the immigrant does not comply in the time specified, the amount of the penalty under 2, above, is doubled to a maximum of $24,000; and
- there is an additional penalty for failure to file within 24 months of 5 % of the foreign assets minus any penalties paid.
For filing false returns the penalty is the greater of $24,000 or 5% of the actual total cost of the foreign property, shares, debts or amount transferred or loaned, as set out above in the section pertaining to filing requirements under these rules.
New immigrants may shelter their foreign income for a period of up to five years by establishing a trust outside of Canada whose trustees are non-residents of Canada.
The foreign trust must be set up prior to immigrating to Canada.
The holder of the landing visas would transfer all foreign investments and income-producing property and liquid assets into the trust. The beneficiaries of the trust could be the immigrant's children.
All income generated by the trust is exempt from Canadian tax for up to 60 months. Thereafter, the trust is taxable in Canada. The utility of the trust is no longer applicable after the five-year period and the taxpayer should wind down the trust prior to the expiration of 60 months.
Trusts need to be carefully structured in order to ensure that the immigrant's spouse and dependent children do not receive any distributions from the trust's income during the five-year life of the trust. Such transfers are deemed to be income and the loss or gain thereof will be subject to taxation.
The trust must be irrevocable for the five year period. Revocable trusts, or trusts that allow the property to revert to the settler or to persons determined by the settler, will not provide the desired taxation shelter.
The foreign reporting rules will apply to the transfer of property to the foreign trust.
Generally, only immigrants will a net worth in excess of $500,000 will benefit from a foreign trust given the significant costs in creating and administering it.
Maintaining Permanent Resident Status
Upon landing, an immigrant becomes a Canadian permanent resident with all the rights and privileges associated with it.
Section 24 Immigration Act sets out the requirements to maintain permanent resident status in Canada. There are two ways of losing permanent residency status:
- the immigrant leaves or remains outside of Canada with the intention of abandoning Canada as that immigrant's place of permanent residence; or
- a removal order has been made against the immigrant.
The 183 Day Rule
Section 24(2) of the Immigration Act, states that:
Where a permanent resident is outside of Canada for more than one hundred and eighty-three days, in any twelve month period, that person shall be deemed to have abandoned Canada as his place of permanent residence unless the person satisfies an immigration officer or an adjudicator, as the case may be, that he did not intend to abandon Canada as his place of permanent residence.
Each time an immigrant returns to Canada, an immigration officer may examine the person to determine whether in the preceding 12 month period the immigrant was absent from Canada for a total of more than 183 days.
In considering whether or not an immigrant has abandoned Canada as the place of residence, an immigration officer at the port of entry will consider the following:
- length of absence;
- reasons given for an extended absence;
- evidence of continuing ties to Canada, such as driver's licence, health insurance, family ties, employment, etc.
- medical or humanitarian reasons eg. caring for sick relative; and
- whether there are extensive ties outside of Canada, such as foreign employment, family, residence, etc.
An immigrant absent from Canada for more than 183 days is presumed to have abandoned permanent residence unless the immigrant can rebut the presumption. To assist in rebutting this presumption an immigrant should obtain a Returning Resident Permit.If the immigrant is unable to satisfy the immigration officer that he or she is a returning resident, the immigrant will be reportable under section 20 of the Immigration Act. Subsequently, the immigrant will be given an opportunity to satisfy a senior immigration officer that he or she is a returning resident. If the immigrant fails he or she must then satisfy an immigration adjudicator that he or she did not intend to abandon Canada as a place of residence.
As a permanent resident, the immigrant also has the right to appeal a removal order to the Appeal Division of the Immigration and Refugee Board.
The Case Law is clear in that both physical absence and the intention to abandon Canada as a place of residence must be present in order for an adjudicator to conclude that a resident has abandoned permanent resident status. In other words, there are two elements essential to the creation of residence: 1) physical presence; and 2) the intention to remain in that place [see Daniels v. Canada (MEI)(Nov.27, 1980), Doc. Toronto 80-925, (Imm.App. Bd.) (unreported)].
Permanent residents under the age of 14 are considered unable to make the decision to abandon Canada as their place of residence. Consequently, they cannot lose their residence [See D'Souza v. Canada (Minister of Employment & Immigration) (oct. 8, 1980) Doc. Toronto 79-9012 (Imm. App. Bd.) (unreported).
A person is not eligible for Canadian citizenship if the person has ceased to be a permanent resident under section 24 of the Immigration Act.
See Returning Resident Permit to prevent losing your permanent residency status.