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Canadian Perspectives - September 1998

The information in this edition of Canadian Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate as of September, 1998 but professional advice should always be obtained before acting on the information herein.


Offshore Trusts, Which Jurisdiction?

By Thomas Lee, LL.M, FHKSA

Offshore trusts remain the best tax planning tool for immigrants to Canada. By using them properly, tax can be avoided (legally) for a period of up to five years from the date of arrival. In some cases, this period can be extended.

The trustees manage the affairs of the trust and have a responsibility to the beneficiaries (the people who will ultimately receive the trust's property). We normally recommend that a professional trustee be used, such as a bank or trust company. These entities are typically located in tax haven jurisdictions.

One question which often arises is which jurisdiction is best?

In the rare case where an immigrant trust needs the benefit of an international tax treaty with Canada, the choice of jurisdiction becomes quite limited. Normally this will confine the selection to one of Singapore, New Zealand or Barbados. Otherwise, for Canadian tax purposes, any tax haven jurisdiction will be suitable. No particular jurisdiction is best, or even preferred over another.

If you anticipate having extensive contact with the trustees (suppose for example, they are managing a stock portfolio on your behalf) you may wish to visit them once or twice a year. You should then select a location which is convenient to you. Also, you may want the location to be within the same time zone as the place where you live.

Some financial institutions can offer a wide choice of jurisdictions (typically Jersey, Guernsey, Bermuda, Bahamas, British Virgin Islands, Cayman Islands and more). However, other equally qualified financial institutions may have operations only in one or two tax haven locations, so the choice may be made for you.

Far more important than the jurisdiction itself are the characteristics of the financial institution that you select: reputation, experience in managing international trusts, compatibility. Also, we normally find it advantageous if the institution has at least a general knowledge and understanding of the Canadian tax system.