Moving to Canada

[peripatetic]

What are you trying to achieve? I think you still have to disclose a foreign affiliate if the ownership is over 10%

(e.g. https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1134/t1134-17e.pdf)

 

 

Thanks. I am trying to defer taxation of capital gains on investments made through the European corporation.

 

I may well be wrong, by my hypothesis is that if I were to own less than 50% of this company it would be deemed a foreign affiliate but not a *controlled* foreign affiliate. My understanding is that any income (active or passive) of this company would be taxable in Europe only, and that the Canadian owner (me) would not be personally liable for any taxation on the company's income. (As you point out, I would be obliged to report the foreign affiliate's income, but that does not mean this income is taxable.) I would obviously expect to pay taxes on any dividends I were to receive from the company, but these could be detached from the company's underlying earnings.

 

Am I missing something here?

[rb]

What are you trying to achieve? I think you still have to disclose a foreign affiliate if the ownership is over 10%

(e.g. https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1134/t1134-17e.pdf)

 

 

Thanks. I am trying to defer taxation of capital gains on investments made through the European corporation.

 

I may well be wrong, by my hypothesis is that if I were to own less than 50% of this company it would be deemed a foreign affiliate but not a *controlled* foreign affiliate. My understanding is that any income (active or passive) of this company would be taxable in Europe only, and that the Canadian owner (me) would not be personally liable for any taxation on the company's income. (As you point out, I would be obliged to report the foreign affiliate's income, but that does not mean this income is taxable.) I would obviously expect to pay taxes on any dividends I were to receive from the company, but these could be detached from the company's underlying earnings.

 

Am I missing something here?

Yep. You're not allowed to do it.

 

What you've just described would be ok for active income. Not OK for passive income. The rules are pretty tight around this stuff. For example, if you have a real estate business (not an apartment that you rent, but a business) that would be considered active income in Canada. If it's outside of Canada then it's passive income.

 

I also don't think it makes sense from a tax perspective. Let's say that you are in a 30% tax bracket in Canada and your holdco pays 10% on capital gains. Then your tax eventually (when you cash your cap gains) would be 40% through this structure vs 15% in Canada. You'll also be paying a Canadian accountant a pretty sum to do your tax returns.

[SharperDingaan]

Assume that you have to report on, and pay taxes on, the NET foreign income.

But if that NET foreign income were zero? - there would be no impact on your Canadian tax, other than reporting (unavoidable).

 

SD

[scorpioncapital]

I would make the least moves necessary after running a simulation for a few years on paper or with software.

If the EU company does not pay capital gains tax and canada deems look-thru passive income to include capital gains then there is no benefit but it may be roughly neutral. Also I do believe the first 5 years of a new Canadian residency there is no exit tax on capital gains realized so you have 5 years to decide if you want to continue or not.

[peripatetic]

Hmm. Not quite the answer I was hoping for, but at least now I know. In hindsight, I realize my plan did seem a little too good to be true. Thanks for your patience in explaining the rules to me.

 

I will need to model this out as suggested, but I'm leaning toward liquidating the company. I'm very hesitant to subject myself to the annual exercise of preparing accounts and tax reports in two countries if the best I can achieve is "roughly neutral". Better then to spend my time finding some good compounders.

[SharperDingaan]

Consider the home company borrowing, making a loan to you, and paying you a retainer.

You get the cash at zero net cost (retainer = loan interest). Home company net income declines (retainer amount). Home company pays the cash to service the loan. Model to produce the desired result. FX delta (rates at the dates loan issued & repaid) an additional kicker.

 

Minimal change  ;)

 

SD