[James]

I've been thinking about the long-term tax impact of the fiscal response of western govts to the credit crunch. Since most western govts have very large fiscal deficits to help fight the recession, I'm concerned that they'll be looking for new sources of tax revenue in the coming years. I expect that, based on the demographics of voters, govts will be looking to the younger generations to shoulder the burden of higher taxes.

I've been thinking about ways to avoid the negative impacts of higher taxes. Obviously there's not much I can do about higher income taxes other than move out of Canada. Consumption taxes don't affect me that much because my family and I live a very frugal lifestyle. But I would be severely affected by changes to investment taxes. I'm afraid that changes to capital gains taxes, RRSP limits and dividend tax rates will have significant impacts on my retirement planning (I'm 31 now with a plan to be FI by 55, which I'm still on track for).

To hedge the impacts of higher taxes in Canada and other developed countries, I've been thinking about how I can legally move money offshore to developing countries to invest in businesses or other assets that will provide an income in the local currency. That way I can create a self sustaining cashflow outside of Canada that will further diverisfy my tax liabilities.

I understand that there are many pitfalls to investing in developing countries - ownership rights, corruption, long-distance mgmt, changing laws, different taxation issues, etc. I also understand that the Canadian govt wants a piece of offshore investments. I'd like to start a discussion of these issues and see what ideas you all can come up with for keeping the taxman's hands out of my investments.

 

[OhGreatGuru]

To hedge the impacts of higher taxes in Canada and other developed countries, I've been thinking about how I can legally move money offshore to developing countries to invest in businesses or other assets that will provide an income in the local currency. That way I can create a self sustaining cashflow outside of Canada that will further diverisfy my tax liabilities.

My understanding is that as long as you are a Canadian resident for income tax purposes, you have to pay taxes on your global income. So the only legal way to do what you are planning is to leave Canada - and good riddance to you. (Shades of K.C.Irving.) There are illegal ways of hiding your assets in offshore accounts, but we won't go there.

 

[high octane]

Shades of J.C.Irving

Haha that's exactly who I thought of

 

[leslie]

This strategy will not help you avoid tax. You must claim as taxable income ALL your world wide income on your personal tax return. Of course you get to reduce the tax payable by any tax paid in the foreign country, but for this strategy you would be choosing low-tax jurisdictions.

There are ways to put your cash into corporations/trusts resident in foreign countries. I believe there are still ways (they keep closing these loopholes) to delay taxation until you try to repatriate the cash back to Canada. But this kind of thing SHOULD NOT be set up on the advice from this website.

And even lawyers who set up these schemes are not always aware (willfully) that they are contravening Cdn laws. So you run the risk of their incompetence.

Why not just move to those countries now?

 

[Doug]

IIRC, when you leave Canada for a another country, you will have to pay tax on your unrealized capital gains. If the stock market has treated you badly lately, now might be a good time. Also, portfolio size tends to increase with age. If you want to leave, now might be a good time from that point of view.

 

[Robillard]

Eurobonds are theoretically free of tax since they are bearer instruments, and the holders generally don't tell the tax authorities that they have them. At the same time, it's my understanding that the yields on eurobonds are commensurately lower than equivalent taxable corporate bonds. If true, then there isn't much benefit to holding a eurobond as opposed to a domestic corporate bond, even if one can avoid paying tax on the interest income.

Anyways, Canada isn't such a bad place to be tax wise. In 2008 we had the lowest deficit in the G8, the federal government's credit rating isn't under threat of downgrade, and personal and corporate tax rates are in a long term decline.

 

[Berubeland]

I know one of my pet peeves is in comparison of tax rates between the USA and Canada cost of health care is included here and not included there.

Once you factor in the cost of purchasing health insurance it destroys any tax advantage at least in our little middle class world

 

[OhGreatGuru]

You can add to that that we have more equitable funding of primary & secondary education on province-wide bases; generally lower post-secondary education costs due to better government support for education; and we have subsidized long term care facilities (which is kind of an extension of health care I suppose).

 

[bean438]

Ask our former PM Paul Martin. Didn't his "international" shipping company avoid Canada taxation?
According to Dianne Francis he did. Got to love those Liberals and the scandals, and the people who vote for them.
Speaking of Dianne Francis, I read another book of hers (can't remember the name) about Canada's wealthiest famillies. Half of them didn't go "off shore" out of a moral duty to give back to the country them gave to them. Demarais, Patterson pay tax. The others set up some kind of trust so that the heirs can receive millions of tax free income and still get to use our tax funded serviced. Irving was one name.
There is a way to do it legally. Ask the former PM.

 

[iherald]

The company owned by Prime Minister Martin didn't pay taxes, but any dividends or payments to him would have been taxed. If he were to sell the company, he'd have to pay Canadian taxes.

The original poster would need to start an offshore business to invest in other countries and not take any of that money himself. Which may defeat the purpose of the cashflow he wants.

The offshore business can make sense when it's a big company, but htere are likely a lot of associated costs that may minimize the overall success of the strategy.

Edit: There is also an issue with tax avoidance and tax evasion. If we invest in our RRSP, we avoid taxes, which is perfectly legal and to my mind acceptable. Irving attempted to evade taxes,which isn't cool. But to blame them for using the tax code as it is written and using trusts or whatever is a bit silly. If the government doesn't like it, they can change the rules, but if the rules stay the same and they play by the rules, good for them.