North Vancouver Chamber of Commerce


Pg.2: Tax Havens continued... Yes, there are legitimate uses for offshore trusts, and offshore tax havens do offer significant advantages when properly structured for legal reasons. Stay with us as we take a look at the factors and forces driving the "offshore" surge and examine some of the misconceptions and pitfalls that await the unwary traveller on this path. Why Offshore? - There are numerous reasons for considering offshore financial strategies. We will examine the most common: Diversification - Inevitably, every financial writer will offer the advice, "DIVERSIFY". The age old adage, "Don t put all your eggs in one basket," has never been more appropriate than when applied to investments in Canada and the United States. Whether invested in conservative, liquid holdings, or in aggressive mutual funds or stocks, investing globally will offer better growth and protection than investing only in Canada and the U.S.A. Did you know that the new Euro and the Swiss Franc are the only two "hard" currencies (backed by gold) in the world. Can your Canadian bank hold your deposits in these currencies? NO. The Canadian and US governments can render your investments worthless simply by printing more worthless paper dollars. The only protection against government greed and stupidity is to diversify offshore. Asset Protection - In a litigious society, modelled after our U.S. neighbours, we are becoming increasingly vulnerable to frivolous litigation. Human nature being what it is, if you have something, someone will want it, and some hotshot lawyer working on a contingency basis could well go after it. Taxes or lawsuits, we are "sitting ducks." Properly structured, offshore asset protection trusts can protect your assets. Estate Planning - It is estimated that the "baby boomer" generation will inherit in excess of a TRILLION dollars over the next decade or so. Revenue Canada is salivating over the feast it anticipates!! Do you realize that the government will undoubtedly end up with 50% or more of your RRSP savings? Upon your death, capital gains taxes could wipe out a substantial portion of your estate. We used to have estate taxes in Canada. Consider how easy it will be for a cash strapped government to pass such legislation again? Everything we own is a matter of record, an open book to the Canadian government. Socialist countries in Europe impose wealth taxes. What is to stop the Canadian government from doing the same? How quickly would that erode your retirement fund or the estate that you plan to leave to your heirs? In Canada we can still escape taxation on gifts and on any capital gain on the sale of our principal residence. How soon will those benefits be taken away? U.S. citizens face gift taxes, estate taxes and taxation on capital gains on their homes. It is only a matter of time before Canada follows suit. Under the laws governing trusts in many offshore jurisdictions a Foreign Asset Protection Trust offers superior estate protection, creditor protection and precludes the "forced heirship" rules imposed at home. Your estate is distributed EXACTLY as you direct.	Income Tax - If, under the Canadian tax regime, you invest $100,000 over 20 years at 15% interest, at the end of the 20 years you would have some $425,000. On the other hand, the same amount, invested for the same time at the same rate, in a tax free environment, would provide you with more than$1,600,000. Here is a difficult question for you. Would you rather retire with $425,000 or with$1,600,000? Make no mistake, although offshore strategies can be very effective and are likely the only way to survive the Canadian tax system, pursuing such avenues requires expert advice. Revenue Canada is fully aware of the billions of dollars that smart Canadians have squirreled away in foreign jurisdictions. Recent and proposed legislation is aimed at closing the loopholes that enable taxpayers to keep their income, assets and estates out of the taxman s reach. Budget proposals will attack offshore strategies by implementing such tactics as imposing tax liabilities on Canadian residents who transfer property to a foreign trust and/or taxing the beneficiaries of such trusts on undistributed income. Exchange control regulations are being implemented that will make it increasingly difficult for Canadian residents to take their money out of Canada without attracting the attention of the tax department. Furthermore, not all offshore jurisdictions are equal. For example, some tax haven jurisdictions, based on English Common Law, do not have specific legislation to supersede fraudulent conveyance legislation. The absence of such specific legislation allows a potential, if frivolous, angle of attack against the trust. Another example is that some jurisdictions do not have specific laws against "forced heirship" that would allow a possible claim against your estate, irrespective of your wishes. In conclusion, it is still possible, within legal boundaries, to establish an offshore financial structure that will address your specific financial needs, HOWEVER, it is imperative that you obtain guidance from a professional who is not only expert with respect to Canadian tax matters, but who also is well versed in international finance and the tax and trust regulations of the various offshore jurisdictions. Done right, this could be your financial salvation. Make a mistake and you could face serious consequences. Alex Tessmann, ICIA Digital North Accounting & Financial Services #2 - 117 East 15th Street North Vancouver, BC, Canada V7L 2P7 Phone:(604).983.8742 Fax:(604).983.2853 E-Mail: dnlease@istar.ca Web Site: http://www.northshore-online.com/dn

Back to articles main page