The word immigrate brings back memories of middle school where I could never remember the distinction between immigrate and emigrate. Before I digress – to immigrate means to become a permanent resident in a country other than one’s country of origin. To emigrate means to leave one’s country to settle in another.
When speaking to recent immigrants to Canada, I have noticed that often overlooked in the move is the setting up of an immigration trust. Yes, dear reader upon immigration you are deemed to have a step up in basis in property you are bringing into Canada but that does not mean that you should not consider an immigration trust. Non-residents who move to Canada are generally deemed to have disposed of all of their capital assets and deemed to have re-acquired the assets at the value at the time of immigration into Canada (Paragraph 128.1(1)(b) of the Income Tax Act). I digress.
An immigration trust allows a new immigrant to Canada to defer Canadian taxation on income and capital gains earned by the trust for 60 months. As Canadian residents are taxed on income earned worldwide, a tax holiday for 60 months is a good thing. The 60 month time clock starts clicking on the date residency is assumed in Canada. For an immigrant who did not think of utilizing an immigration trust prior to landing in Canada, a trust can still be set up after landing. The 60 months is merely reduced by the number of months resident in Canada. And of course there may be Canadian capital gains or income tax on the increase in value from the time residency was assumed to the time of transfer of the asset into trust.
An immigration trust has to be a non-resident trust. Under Canadian law this means that the mind and management, control, of the trust must be exercised outside of Canada. It is imperative that the immigrant to Canada not exercise control over the trust. I would recommend that a trust company situated in the jurisdiction where the trust is located manage the trust.
The trust need not be funded with cash but can be funded with real estate as well. Do check with the various trust companies on what they will accept as assets as this will enable the Canadian resident to accumulate free from Canadian tax gains on the disposition of these assets. At the end of the 60 months there are several strategies to employ, one of which is to wind up the trust by moving it to Canada and distributing the capital assets to the beneficiaries free of Canadian tax. The beneficiaries of the trust will receive the assets of the trust at the fair market value established at the date of the winding up of the trust.
The above is merely an overview and thoughts on immigration to Canada. Further planning can of course be done but I wanted to highlight to the reader that when moving to Canada it is wise to consider the immigration trust. Parliament was generous to allow this legislation as it gives the immigrant to Canada peace of mind that in the event Canada was not to be his or her final destination emigration from Canada would at least be painless from a tax perspective.