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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.


Tax Tales — An actual case history

By Elaine Pui, CGA, AHKSA

Some people believe that falling markets in Asian countries makes the need for tax planning obsolete. If you agree with this, then the story below will interest you.

Mr. Chow and his family (not his real name) moved to Canada in 1997 after working for 25 years for the Hong Kong Government. He now works in Toronto and receives a pension from Hong Kong. He also has a property in Hong Kong which he rents. His total income is about $120,000 per year and he pays about $45,000 annually in Canadian tax.

The Hong Kong property cost $800,000 H.K. in 1974, was worth $10 million H.K. when Mr. Chow came to Canada, and is now worth $4 million H.K. Mr. Chow believes that the property will go back up in value.

Mr. Chow's cost for Canadian purposes is $10 million H.K. (the value when he arrived). If he sets up an offshore trust now and transfers the property to it, he will realize a loss of $6 million H.K. which will be substantially tax deductible in Canada. This wipes out Mr. Chow's Canadian tax for nine years, for a savings of about $400,000.

The offshore trust, meanwhile, will be exempt of tax until 2002, and can be used to shelter any increase in value from tax. This type of planning lets you have your cake and eat it too.