A Canadian's Best Tax Haven: The US (eBook)

Introduction xv
1 What Is a Tax Haven? 1
1. The Traditional Tax Haven 2
2. The Real Tax Haven Definition 2
3. Where Are the Traditional Tax Havens? 2
4. The Taxes of Tax Havens 4
4.1 Bahamas 4
4.2 Cayman Islands 5
5. Mexico Is Generally Not Considered a Traditional Tax
Haven 5
6. The US Is a Good Tax Haven for Canadians 7
6.1 Do not fear the Internal Revenue Service (IRS) 7
6.2 The current US economic environment 10
7. Canada Is a Tax Haven 12
8. A n End to the Traditional Tax Haven? 12
2 Why Traditional Tax Havens Don’t Work 15
1. A Tale of Two Business Partners 16
2. The United States Is the Only Tax Haven
to Which Canadians Can Drive 19
2.1 Easy commute 20
2.2 Buying or building your dream home 21
3. Disadvantages of Traditional Tax Havens 21
3.1 Get me off of this island! 22
3.2 Tax havens are treaty deficient 23
3.3 Culture shock 24
3.4 Problems receiving proper medical treatment 24
3.5 Owning a vehicle in a foreign country 24
viii A Canadian’s best tax haven: The US
3 T he Hidden Cost of Traditional Tax Havens 27
1. Full Disclosure Inadequate in Tax Havens 28
2. U S Registered Investment Advisors Provide
the Best Consumer Protection 29
3. Brokerage Firms Are Not Required to Act in the
Consumer’s Best Interest 30
4. Tax Haven Advisor Background Information
Is Scarce 31
5. Focusing on the Fees 31
5.1 Management expense ratio (MER) 31
5.2 U ndisclosed security markups 32
5.3 Multiple middle men 33
5.4 A sset protection trusts 34
5.5 Total fees a significant drag 34
5.6 No bargains 37
5.7 Tax-free options in the US 38
5.8 Financial leaches 38
5.9 Withholding tax diminishes returns 40
6. A n Example of a Typical Tax Haven Island Family 42
4 Medical Considerations 45
1. Health Insurance Premium Rates 46
2. Plan Ahead 47
3. Get the Best Medical Care by Using Both
the Canadian and American Systems 48
4. Treaty Protection Necessary for Medical Treatment 49
5. Immigration Concerns for Medical Services 50
6. U S Medicare Is Available 50
7. Medical Coverage for Those 75 and Older 51
5 U nderstanding the Canada-US Tax Treaty 53
1. Tax Treaties Should Be Embraced
Rather than Ignored 54
2. Determination of Residency: The Tiebreaker 55
Contents ix
2.1 Choice and control of residency 57
2.2 Breaking Canadian ties for a traditional
tax haven island 58
3. The Treaty Allows You to Run a Business
in Canada from the US 59
4. No Need to Drop Your Canadian Directorships 60
5. Bronfman Rules 61
5.1 Don’t wave red flags at the CRA62
6. The Tax Treaty Prevents Double Taxation 63
6.1 Foreign tax credits 63
6.2 Exemptions 65
6.3 Withholding rates 65
7. Treaty Tax Rates Are Less than Tax Haven Tax Rates 66
6 Receiving Income While Living in a Tax Haven 67
1. Interest Income 69
2. U S Corporate Dividend Income 70
3. Canadian Qualified Dividend Income 70
4. Canadian Real Estate Capital Gains 71
5. General, Non-Real Estate Capital Gains 73
6. Pension and Annuities 74
7. Periodic Registered Plan Withdrawals 76
8. Lump-Sum Withdrawals from RRSPs 76
9. Canada Pension Plan (CPP) and Quebec Pension
Plan (QPP) 78
10. Old Age Security (OAS) 79
11. Canadian Rental Income 80
12. Employment Income 81
13. Royalties 83
14. Who Won the Tax Haven Tax Challenge? 84
15. Real Results from Real People 85
15.1 High-level corporate executive 87
15.2 Business owner and entrepreneur 88
15.3 Broker 89
x A Canadian’s best tax haven: The US
15.4 Business owner selling a successful business 90
15.5 Simply retired 91
15.6 Teachers 91
7 T he US Is an Incredible Tax Haven
for Small-Business Owners 93
1. U ninformed Advisors May Become Obstacles 94
2. The Power of Tax Free versus Tax Deferred 95
3. Two Common Myths 97
4. Larger Capital Gains Exemption Equivalent 97
4.1 Brother to brother 98
5. Operating a Canadian Business from the US 99
6. Tax-Free Rollovers on Investment Real Estate 100
7. The Unreal-Real Billionaire 101
8 T he Greatest Opportunities:
Retirement Savings Plans 103
1. Nearly All Registered Plans Are Taxed Identically 104
2. What Does the IRS Think of RRSPs? 105
2.1 RRSP phantom income 106
3. Locked-In Retirement Accounts 107
4. Hire a Professional Cross-Border Financial Planner 109
9 Realizing the Dream 111
1. Overcoming the Myths 115
1.1 Substantial exit tax 116
1.2 Subject to US estate taxes 117
1.3 Facing the Internal Revenue Service (IRS) 118
2. Dealing with the Canadian Departure Tax 118
2.1 Defer or eliminate the departure tax 120
2.2 Principal residence disposition on exit 122
3. Eliminating US Estate Taxes 123
3.1 No Canadian Estate Tax Holiday 125
Contents xi
3.2 Pre-US-entry trust 125
4. Immigration to a Tax Haven 126
4.1 North American Free Trade Agreement
(NAFTA) 127
4.2 The gold card 127
4.3 Family immigration sponsorship 129
4.4 Pending retirement visa 130
10 C hoosing the Best Advisors for the Job 131
1. The Four Phases of Cross-Border Planning 132
1.1 Data gathering 132
1.2 The pre-exit plan 133
1.3 The post-exit plan 133
1.4 Maintenance 134
2. The Dually Qualified Planning Professional 134
3. Dually Qualified Team Members 138
4. Chartered Accountants (CAs) in Canada and
Certified Public Accountants (CPAs) in the US 138
5. What to Expect from Cross-Border Financial
Planners 139
6. What Does Your Cross-Border Lifestyle
Dream Cost? 141
6.1 How are cross-border planners compensated? 141
6.2 Putting costs into perspective 144
6.3 A value proposition 145
7. Tips on Finding the Best Cross-Border Financial
Planner 146
8. The Next Step to Your Enriched Cross-Border
Lifestyle 147
.Samples and Illustrations
1 Portfolio Net Fees Comparison 37
2 Dividend Withholding Treaty Rates
versus Tax Havens 40
3 Portfolio Net Fees and Taxes Comparison 41
xii A Canadian’s best tax haven: The US
4 Tax on $100,000 Interest Income Comparison 70
5 $100,000 US Dividend Income Comparison 71
6 Tax on $100,000 Canadian Dividend Income
Comparison 72
7 Tax on $100,000 Canadian Real Estate Capital
Gains Income Comparison 73
8 Tax on $100,000 Capital Gains Income
Comparison 74
9 Tax on $100,000 Pension Income Comparison 75
10 Tax on $100,000 Periodic Registered Plan
Withdrawals Comparison 77
11 Tax on $100,000 Lump-Sum RRSP Income
Comparison 78
12 Tax on $20,000 Canada Pension Plan (CPP)
and Quebec Pension Plan (QPP) Income
Comparison 79
13 Tax on $12,000 Old Age Security (OAS) Income
Comparison 81
14 Tax on $100,000 Canadian Rental Income
Comparison 82
15 Tax on $100,000 Canadian Employment Income
Comparison 83
16 Tax on $100,000 Canadian Royalty Income
Comparison 84
17 U S versus Canada After-Tax Income Comparison 96
18 Milestone Diagram 136–137