Canada offers a number of permanent immigration options for
business investors. Many
business immigrants to Canada own and operate a business in
their country of origin. For these individuals, one of the most
significant benefits of moving to Canada, largely overlooked by
most consultants, can be the ability to distribute the accumulated
profits of their foreign business in a tax-efficient, often tax
free manner. This can represent a major financial tax benefit for
individuals living in countries that impose high taxes on corporate
For example, consider a non-Canadian individual that owns an
incorporated business in a country that imposes a tax of 30% on
dividends. Assume that this business has retained earnings of $10
Million. A distribution of all of the retained earnings to the
individual would therefore give rise to $3.0 Million in tax ($10
Million x 30%).
Now consider the tax treatment of that same distribution if the
individual immigrates to Canada and implements some strategic tax
planning. In one common plan, the immigrant arriving in Canada
transfers the shares of his foreign business to a Canadian holding
company in exchange for shares of the Canadian company. Under
existing, favorable tax rules that apply to immigrants, Canada will
grant the individual a full tax basis in his foreign shares, equal
to the fair market value of the business at the time of
immigration. Canada will also grant the individual the same full
tax basis in the shares of the Canadian holding company to which
the business is transferred.
In this scenario, dividends will flow from the foreign company,
to the Canadian holding company, and finally to the immigrating
individual. These dividends will typically be subject to foreign
dividend withholding tax in their country of origin at a
treaty-reduced rate of 5%. However, the dividends will not be
subject to any additional taxation when received by the Canadian
holding company. In turn, the Canadian holding company can
distribute the dividend proceeds to the immigrating individual in a
tax-free manner as a return of capital (i.e. a return of tax
basis). In total, the tax paid on the $10 Million distribution to
the immigrant will be $0.5 Million, rather than the $3.0 Million
that would have been paid by the immigrant in his country of
origin, representing a tax free benefit of $2.5 Million.
Interested employers: Kindly contact us
here to receive further information. Interested candidates: Find out whether you
qualify to Canada by completing our
free on-line evaluation. We will provide you with our
evaluation within 1-2 business days.
The content of this article reflects the personal insight of
Attorney Colin Singer and needs no disclaimer
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