Offshore Trust – An Overview

The only way to protect your wealth or part of it is through a trust. It could be through an onshore discretionary trust or an offshore discretionary trust. A trust is an arrangement where a person (the settler) creates a trust and the trustees hold and manage assets (the trust fund) for the benefit of others (the beneficiaries). An offshore trust or overseas trust is a trust that is resident outside the "resident country" for tax purposes. The residence status of an overseas trust is important because it determines how the trust and the beneficiaries are taxed in your resident country for income tax and capital gains tax. The resident status of a trust does not directly affect the inheritance tax in most cases.

While the tax advantages of using offshore trusts are limited, they can still play a key role in estate and financial planning to help you preserve and enhance your wealth.

You may benefit from using an offshore trust if you are a Canadian resident and:

• You have assets in various locations throughout the world;
• You intend to distribute assets to individuals living outside Canada during your lifetime;
• You have recently immigrated to Canada; or
• You intend to leave Canada. If you are not a Canadian resident, an overseas trust can:
• help you distribute assets to Canadian residents tax effectively, either during your lifetime or through your will; or
• provide significant tax benefits if you plan to immigrate to Canada

An offshore trust is established under the laws of another country and is administered by a non-Canadian trustee, typically a financial institution. An overseas trust has a settler, a trustee and beneficiaries. If you are the settler of the trust, you will fund the trust either by giving or lending property to it. A trust is separate from you and your beneficiaries, and is governed by the laws of the country in which the trustee is resident.

The trustee becomes the legal owner of the trust property and is required to manage the property as directed in the trust deed. The trustee is also responsible for distributing trust assets to the beneficiaries you have named in the trust deed. The trustee has full decision-making powers over trust assets based on the provisions of the trust deed, and it is essential that you have complete confidence in your choice of trustee.

If you are planning to immigrate (or have recently immigrated) to Canada, the assets in an offshore immigration trust can earn income and capital gains from foreign sources free from Canadian income tax for up to the first 60 months of the immigrant’s Canadian residency. Because the duration of the Canadian tax holiday is based upon the time you are resident in Canada, setting up the trust prior to the move to Canada maximizes the benefits. However, setting up such a trust may generally still provide some benefits even if established within 60 months after immigration to Canada.

Because of the complexity of the rules governing overseas trusts, you should obtain expert advice from experienced Canadian tax specialist who is familiar with your particular situation. You will need tax, legal, and investment advice to ensure that the trust is structured for your maximum advantage. Your tax specialist will also need to consult with reputable advisors in the jurisdiction where the trust will be established to ensure familiarity and compliance with local laws as well as jurisdictions in which the beneficiaries reside.

Know About Canadian Corporate Tax

In Canada, when it comes to taxes, big corporations don't pay their full share. Instead of other countries, the central government helps out big businesses in order to keep the money circulating through Canada. Without supporting such services through income tax, it is seen as inappropriate and unfair that corporations with profitable operations benefit from government services. Also, current levels of taxation were cited as a major problem for Canadians. Since Canadian corporations pay a lower income and corporate tax, if the government was to raise the tax who would pay it at the end. Another clear example which supports such argument is seen when it comes to high payroll tax. Since businesses claim that high payroll tax will force them to fire employees, this gives them another advantage in not paying their expected share. Businesses pay less then what is expected of them to pay.

Canadian corporate tax includes taxes on corporate income in Canada and other taxes and levies paid by corporations to the various levels of government in Canada. These include capital and insurance premium taxes; payroll levies (e.g., employment insurance, Canada Pension Plan, Quebec Pension Plan and Workers' Compensation); property taxes; and indirect taxes, such as goods and services tax (GST), and sales and excise taxes, levied on business inputs.

Canadian corporate tax is levied both at the federal and provincial level. The current federal corporate tax rate for 2013 is 15% on general active business income and the combined federal and provincial corporate income tax rates in 2013 range from 25% to 31%, depending on the province in which the permanent establishment is located.

Nonresident corporations who have business interests in Canada and generate revenue from a business that is located in Canada will have to pay corporate income tax to the Canadian Government. The clauses that govern the corporate income tax in Canada are a bit complicated and the complications will only increase if you are a nonresident. If you are ‘carrying on business' in Canada either directly or indirectly then the profit that is earned out of the business will be subject to taxation. Like in income tax, the residency status of the corporation will have to be determined and the corporate tax that is levied will be based on the residency status of the corporation.

Canada’s complex and continually changing legislative environment poses a significant tax-compliance burden on every company doing business in Canada. That’s why it’s more important than ever for businesses to understand the key tax regulations that affect their particular business. To minimize your risks, it’s important to work with professionals who can help you manage your tax issues and anticipate the potential impact they will have.

Hire an International Tax Accountant to Help You with International Tax Planning

International tax planning involves strategies to reduce or outright eliminate the payment of income taxes and other taxes. Global tax planning doesn't mean illegal tax evasion. There is a big difference between tax evasion and legal tax avoidance. Evasion means lying, hiding, fraud, perjury, and other illegal ways to hide income which is a crime in most countries. Legal tax avoidance is using a global tax plan to legally avoid paying taxes.

International tax planning usually includes the use of offshore corporations to be created in countries who do not tax their corporations doing business outside of the country. All of the earned income and passive income (like bank account interest) are tax free. Products or services being sold by these corporations to other countries makes them "offshore" corporation in regards to generating income. Offshore corporations also get their name because they exist away from the client's home country.

Here are few advantages of effective international, or overseas, tax planning:

• Taking advantage of double taxation treaties between your resident country and other offshore countries
• Legally minimizing international tax liabilities
• Improved financial efficiency
• Maximize working capital
• Protecting business, and personal, assets

An effective, well-structured global tax planning strategy can legally benefit an international business in a number of areas. It can be a complex process, especially when multiple jurisdictions are involved. There are a number of fundamental issues to consider before deciding on an optimum strategy and this is the reason why using an experienced professional can be valuable. They will assist with both developing the most suitable strategy and avoiding potential issues from arising.

Hence, it is important that you understand the tax related laws and rules of your home country as well as of the new country, where you are planning to settle. In addition, you will need to focus more towards global tax planning.

Finding a competent tax accountant to come up with an international tax plan takes a little research. The internet is filled with law firms and legal entities creation companies all claiming they can do "asset protection" or can eliminate income taxes or do asset management and other forms of a global tax plan.

International tax accountant can also help in your global taxation planning. In fact, they have too a good understanding about offshore tax related rules and breaks. However, appointing an international accountant will be of no use if your prime concern is about offshore banking advantage and investment. They can actually advise you on the residency related rules and laws.

Features of Offshore Trusts

Offshore trusts or overseas trusts are formed due to the distinct asset protection that is provided. One can hold assets as well as funds and property and these assets are then managed in accordance with the rules laid down in the deed of trust. There are offshore tax benefits that one can avail of as well which are preferred to the taxes residing in one's country. The distribution of the funds or the benefits of the assets among the group of persons who are known as beneficiaries of the trust fund is also dictated by the deed of trust.

It is formed through an arrangement that is entered into by a person or a group that is referred to as a trustee. The trustee and the settler come into an agreement. The settler is a group of people or a distinct person. The provisions are made in the form of a legal agreement. It is known as a deed of trust that is formed between the trustee and the settler.

It is well-established policy that new immigrants to Canada are given a five-year tax exemption, through the use of an appropriately structured overseas trust. Furthermore, offshore trusts established by non-residents of Canada for Canadian beneficiaries are not subject to Canadian tax at all. Canadian residents may receive distributions of capital from such overseas trusts tax-free.

Trusts are subject to taxation. Whenever you move property into/out of a trust, there may be tax consequences. Furthermore, the income and appreciation of the assets may also be taxed. Therefore, it is always a good idea to consider the offshore tax implications and minimize them whenever possible.

New or recent immigrants to Canada may continue to use offshore trusts and obtain a 60-month tax exemption. In addition, trusts established by persons who never become resident, either by will or during their lifetime will be tax-free indefinitely. Former residents now living outside Canada may set up a tax-exempt overseas trust to benefit Canadian family members after 60 months of non-residency (18 months if set up by will on death).

Overseas trusts provide the trustee with great flexibility, control and authority over their assets and provide absolute confidentiality, total privacy and protection from liability. Assets managed by overseas trusts are mainly free from tax applicable in a settler's home country or jurisdiction, protecting assets for heirs. An overseas trust is effectively a shield of protection to protect assets from scrutiny, tax and civil legislation and provide peace of mind for people looking to protect their assets and provide for their descendants into the future.

Estate Planning & Its Advantages

Estate planning is about the life of your family and loved ones – and the peace of mind you get from helping to preserve their financial security. Property planning is a difficult subject to discuss by its very nature, – even more so to plan for because it forces us to come to terms with our own mortality. Yet it’s something you need to talk about openly with your loved ones today because you can’t do so after you’re gone – or after they’re gone. Each person will approach estate planning differently, with personal motivations and expectations. No estate plan will be exactly like another. Estate planning should be a reflection of your personal priorities and choices.

Estate planning advantages

• It distributes your assets as you intended; provides funds to cover funeral expenses, as well as immediate and/or long-term family living costs
• Keeps more of your money in the hands of your heirs
• Minimizes income tax and probate fees (no probate fees in Quebec); designates charitable gifts; declares your personal care preferences, including terminal medical treatment and organ donation intentions
• Provides for the tax advantages of income splitting
• Ensures business continuity for business owners
• Identifies the people chosen to carry out your last wishes and care for your children

Generally, Canada is viewed as a country with no estate tax. While that's true, what many people don't realize is that a deemed disposition tax, which is similar to an estate tax, applies when you die. Deemed disposition tax is so-named because your investments are deemed to be sold at death. Any capital gains triggered by their sale are included in a final income tax return filed in the year of death. A final tax return also includes the value of any retirement accounts and income received from stocks, bonds, real estate investments and even life insurance proceeds in the year of death, from January 1 up to the date of death. With Canadian federal income tax rates of up to 29%, this final taxation can be substantial. Provincial taxes and probate fees also apply.

The good news is the tax is deferred if the assets are transferred to a surviving spouse. Taxes are deferred even if the assets are held in a spousal trust, which provides income to the surviving spouse. However, if the spouse sells the assets, then the tax applies. When the spouse dies and the assets are passed on to other heirs, 50% of the capital gains of any stocks, bonds, real estate investments and other assets are taxable at the personal income tax rate.

Property planning is a complex matter so you can take help of a professional. Working closely with your Toronto tax accountant, you’ll find the estate planning process to be liberating. It will provide you with the peace of mind that comes from knowing your loved ones will not be burdened by resolving your personal and financial affairs.