Mobility Transition Coaching
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You could leave a trail for the taxman when you try to access your money in an offshore tax haven, like the Caymans. One of the fantasies overtaxed middle-class Canadians occasionally indulge in is of setting up a secret “offshore” bank account located far from the grasping arms of the taxman.
Fuelled by books like Alex Doulis’s Take the Money and Run! and a glut of imitators with the words “tax haven” in their titles, the notion seems to be based on the perception the average Joe should be able to get away with what he thinks the rich are doing.
To be sure, anyone can open an “offshore” account with a foreign bank. You can do that on vacation in the Bahamas merely by walking into any bank, including the big Canadian branches operating in the Caribbean.
“It’s perfectly legal to open up an offshore bank account,” says Tom Boleantu, president of Calgary-based Expatriate Group Inc.” but you have to file taxes on worldwide income as a Canadian resident.”
The group’s Web site www.expat.ca provides information on setting up offshore accounts but also clarifies that it “does not assist nor condone tax evasion or money laundering.”
Evidently part of the fantasy of the offshore bank account is the mistaken belief you can conveniently “forget” to report any interest or capital gains generated by the offshore account, and that the Canada Customs and Revenue Agency will be none the wiser. If you believe the offshore havens will veil your activities under the cloak of secrecy they once were reputed to have, you’re likely to be nabbed for tax evasion.
We are now in a world of globalization and technology, and use of credit and debit cards leaves an audit trail clear enough for any determined tax collector to put two and two together. Over the past year, most of the popular tax havens have begun to cave in to the disclosure demands of tax-hungry Western democracies.
David Lesperance, legal counsel to Hamilton, Ont.-based Global Relocation Consultants S.A., refers to offshore bank accounts and international business corporations as merely the bricks to build an audit-proof tax structure. “Without a properly designed house, they’re useless. You’ll pay just as much tax on your bank account with Barclays in the Caymans as with a Royal Bank account around the corner.”
In February, the United Kingdom said it will report non-resident tax accounts to countries with which it has a tax treaty. That includes Canada, Mr. Lesperance says.
The pressure on traditional tax havens to, in effect, renege on earlier “privacy” obligations to offshore clients is coming from two international initiatives: the Organization for Economic Co-operation and Development and the Financial Action Task Force. Much of this, Mr. Lesperance says, was set up under the guise of eradicating money laundering by drug smugglers. Most big-name reputable financial institutions are complying. When it comes to choosing between “protecting” a small individual holder of a bank account and paying a $50,000-a-day fine, which would you choose?
If you still wish to pursue the fantasy, that may leave the Fly by Night Bank of Lower Slobovia or some similarly fictitious scam artists. In which case, your problems may soon be worse than paying tax on interest: You could end up losing your entire principal.
Even if you could find a rock-solid foreign bank that looked the other way when the tax authorities came calling, there remains the problem of how to access the money. Suppose you were “successful” in diverting under-the-table cash deals to an offshore bank account that now generates undeclared income. What do you do when you want access to those funds? If you’ve been issued a major credit card, you may be out of luck again. Mr. Lesperance says the Internal Revenue Service in the U.S., Inland Revenue in the U.K. and the CCRA have won a court order to get access to all MasterCard and American Express accounts in the Caymans, Bahamas and British Virgin Islands. The next thing you know the taxman is knocking on your door, wondering how you were able to afford a $10,000 spending spree on your new Barclays Visa card.
Once upon a time it may not have been cost-efficient for governments to go after the little guy, but now it is, Mr. Lesperance says. The Web site (www.quatloos. com/newsltr) describes how offshore banks used to offer “secret” accounts for U.S. citizens, which were believed to be effective in hiding money from the IRS. They offered offshore credit or debit cards that let U.S. citizens access the account from anywhere in the world, and use the cards to purchase goods without leaving a record. But today, the site says, “offshore credit cards have suddenly become a huge tax trap that will send literally thousands of U.S. citizens to jail for tax evasion, and will net tens of billions in back taxes, penalties and interest to Uncle Sam.”
It used to be that the big banks in the Caribbean — including Royal Bank of Canada — were doing nothing wrong under the laws of the countries in which they operated. They were not required to co-operate with tax authorities or to inform them whose accounts offshore credit cards were linked to.
But the laws changed last summer, when the OECD and the FATF released their blacklists of offshore tax havens. These nations were warned that if they did not co-operate with tax authorities in the U.S. and Europe, they would suffer severe retaliatory measures, including trade embargoes. The IRS then imposed requirements that required U.S. banks to file a Suspicious Activity Report whenever money was transferred to one of the tax havens on the blacklists.
With all those tourism dollars at stake, the Bahamas, Caymans and Antigua quickly capitulated.
The heightened risks of going offshore were outlined last June at the Ontario Securities Commission’s Web site (www.osc.gov. on.ca). Its Investor Alert section notes that offshore jurisdictions with lower levels of regulation and securities laws mean less protection for investors.
Which doesn’t mean the average tax-weary Canadian can do nothing. If you have a lot of active non-Canadian source business income or have an electronic business selling services around the world, there may be bona fide corporate structures and offshore trusts that may lighten the load in a way that’s still acceptable to tax authorities.
Alternatively, you could “take the money and run,” by permanently leaving the country — selling your home here, severing all other ties to Canada, collapsing your registered retirement savings plan and paying a withholding tax of 15% to 25%. But that’s another article.
Warning Notice: Office of the Superintendent of Financial Institutions Canada Bureau du surintendant des institutions financières Canad
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APEGGA Professional Speaker Series
On March 3rd The Expatriate Group did a presentation for APEGGA. The topic was “Canadians planning to work abroad (or come home)”. Living as an Expat Canadian is much more than tax implications. During the presentation we identified the 6 dimensions of Expat Planning: Goals, Tax, Lifestyle, Wills, Currency/Banking and Financial Planning. This presentation gave us the opportunity to have open dialogue and walk the attendees through what each dimension looked like as a non-resident. Some of the highlights we discussed were non-residency, culture shock and wealth and strategies for saving.
Non-Residency: Individuals looking to eliminate their tax obligation to the Canadian Government on world-wide income do so by…. Unfortunately, the answer is not so simple. In Canada, non-residency is not a straightforward test as some people might think. Each situation is unique and a case by case basis. We have individuals contacting us daily trying to find out what is required and not required as a non-resident. CRA looks at the total picture – investments, banking, tax, social benefits, and social ties. There are minor ties and major ties to both Canada and in the new country of residence that are used to evaluate tax residency status and obligations.
Culture Shock: Personal disorientation (culture shock) occurs when a person is experiencing an unfamiliar way of life different from their own. Successful adaptation to new a new cultural environment is an important part of the expat transition. There are so many differences when going to a new country: different times to eat, the direction of traffic, food, cultural norms for small talk (what to ask/not ask). Once the change has been identified the individual must come up with coping strategies to adapt. The faster you adapt the faster you are able to overcome culture shock. We find that reverse-culture shock when returning to Canada is much more difficult to overcome and requires much more preparation and concrete readjustment strategies in order to have a successful repatriation to Canada.
Wealth is Complex: Going abroad has many concerns. Most people take care of the urgent pieces of work (i.e. tax, house rental, etc.) however there are many considerations. Banking, currency exchange, pensions, cash, savings, investment accounts, corporate structure, company headquarters, spousal departure, property, capital gains, 
worldwide income, non-resident reporting requirements, tax treaties, Part XII, S216, capital cost allowance, rental expenses, international estate planning, return to Canada, immigration regulations, working visas, world-wide income, employment contracts, health care, repatriation of savings – the list is extensive. The more wealth one has, the more complex the picture gets. It is important to have a professional comprehensive review of these wealth issues – in fact there are tax implications on many of them.
Strategies for Saving: Keep in mind that if you are working overseas you should take advantage of the tax free situation by saving additional income that you might earn. We recommend that our clients keep track of their personal financial accounting prior to departure, while they are away and upon return to Canada. It is common for Expatriate Canadians to hold assets in many different jurisdictions. We recommend consolidating your accounts 
under one Canadian advisor and saving 1/3 of your salary while overseas in Canadian held investment accounts. We recommend this strategy for Estate planning purposes, your Canadian will covers your assets in Canada. Cash flow planning for retirement years should begin as early as possible – especially when the income tax liability in Canada has been reduced. Non-resident withholding taxes are applied to: dividends, rental payments, pension payments, OAS, CPP, RRSP payments, RRIF payments and annuity payments. However, capital gains may be tax-free for non-residents. Canada maintains international tax treaties with many different countries and the amount of withholding tax applied to non-resident income is based on a case-by-case basis.
What you should do today: The first step to successful expatriate work abroad professional is to write down some clear goals (both personal and financial). Spend as much time as possible planning and documenting your expatriation from Canada to ensure a clear roadmap for years ahead. You will be amazed by the growth of your net worth while overseas when sticking to a well thought out financial plan. Pick one dimension of the wealth map (Goals, Tax, Lifestyle, Wills, Currency/Banking and Financial Planning) and dedicate some time to it today. A few hours will pay off forever! We have many clients that are expatriating, repatriating, retired and just starting out with their careers and they all have two things in common: they have a plan and they follow a comprehensive approach to their wealth. Please contact our firm for a consultation if you are interested in a review of your non-residency questions and concerns.
About the Author: Jeanette Boleantu is a non-resident wealth strategist with The Expatriate Group. Her mission is to not only create better planning but also to implement those strategies. This approach gives clients peace-of-mind and helps them to meet both their personal and financial goals.
By Mark Gollom, CBC News Posted: Apr 25, 2012
The Canada Revenue Agency defines someone as a “factual resident” for taxation purposes if they maintain “significant residential ties” to Canada.
Canadians can travel far and wide, but never quite far enough to avoid paying taxes. Whether you’re working in a bar in Paris, or on a global trek, you may still be on the hook for paying tax on income earned.
Here are some things to keep in mind to make sure you don’t run afoul of the Canada Revenue Agency on your return to Canada if you’ve earned money in another country:
1. Canada can tax you based on money earned here and abroad
“Residents of Canada have to pay tax on their worldwide income to Canada no matter where they earn it,” says Georgina Tollstam, an accountant and Partner with KPMG.
This simply means that if you are living, working or travelling abroad but you’re still considered to be a resident of Canada, you’ll have to pay taxes to the federal government. So, when determining whether you are going to have a Canadian tax bill for money earned elsewhere, the first thing to figure out is if you’re still considered a “factual resident” or not.
The Canada Revenue Agency defines someone as a “factual resident” if they maintain “significant residential ties” to Canada. This means you may be temporarily working outside of Canada, vacationing but still have a home in Canada, have a family living in Canada and have a Canadian drivers licence.
To cease residency in Canada, and cease paying taxes to Canada, you have to go about the process of severing residential ties. This means you must no longer have a place to live in Canada, that you have set up a place to live somewhere else, set up financial accounts in a new place, and, if married, have taken your family with you.
Tollstam said that the CRA used to use a 24-month time period to determine non residency, but that has since been eliminated from its guide. She said that basically a minimum of 18 to 24 months away from Canada is now required to be a non-resident.
2.The place where you make your income has first right to tax
But Canada will give you a credit for the tax you have to pay to the country where you earned the income.
For example, let’s say you are working in the U.S. but are still considered a resident of Canada, and you earn $50,000 in the United States. If the U.S. tax on that amount was $7,000 and the Canadian tax on that amount was $10,000, Canada would give you credit on the $7,000 you paid to the U.S.
This means you would have to pay an extra $3,000 to Canada.
“You will pay double tax occasionally, but you generally should not pay double tax,” Tollstam said.
3. It’s still possible to get double taxed
That said, while Canada has tax treaties with different countries that override the domestic law of Canada and laws of the other countries, some non-treaty countries won’t give you full credit for all the taxes paid.
4. You still have to file a return to Canada even if the tax rate is higher in the foreign country
If the tax rate is higher in the foreign country than Canada, you won’t pay anything to Canada on that income.
“But you would still have to file a return and disclose that you had that income, and show [officials] that you paid the tax to the country. [Canada] wants some proof that your paid it,” Tollstam said.
5. Non-residents of Canada are still taxed if they make money in Canada
Sorry, but there’s no exemption from tax just because you’re a non-resident.
“Let’s say you live in the Netherlands but you do come to Canada to do work here for three months,” Tollstam said. “Just because you live in the Netherlands doesn’t mean you’re not taxed on those three months of earnings.”
Once you’re a non-resident, generally speaking you’d cease filing regular returns. But Canadian citizens who are now non-residents may still have periodic income and investments that generate dividends that would also be subject to taxes. This income is generally taxed at a flat rate.
6. The U.S. resident formula
Unlike the factual test in Canada that determines residency, the U.S. taxes non-U.S. citizens based on a very mechanical formula. The calculation is thus: You take all the days you have lived in the United States during the current year, a third of the days you stayed in the U.S. in previous year, and one sixth of the number of days from the year before that. If the sum of those days exceeds 183, you are deemed a U.S. resident.
But it is possible to challenge that. A person can file a “closer connection” statement.
“You basically assert that you have a closer connection to another country and this is why you won’t file a U.S. return,” Tollstam said.
The Canada Revenue Agency provides a lot of tax information for Canadians living or working abroad on its website:
Original Posting: http://www.cbc.ca/news/business/taxes/6-must-know-tax-facts-for-canadians-earning-abroad-1.1167892
Posted on: Currecnyfair.com
Living abroad can be complicated — you’re in a new culture, very likely grappling with at least one foreign language. There’s housing to consider, and if you’ve got children then there are issues related to child care and schools. Even managing your finances abroad can be complex, and that’s where some professional advice might come in handy.
Consolidating your banking will help keep your finances and financial planning organised instead of scattered across the globe. We’ve got some advice from experts to help you on your way.
A great site to bookmark is InterNations. It has financial planning page for expatriates with advice on everything buying property abroad to fiscal residency to dealing with inflation. An example of a before-you-go tip: Anyone moving abroad should have a contingency account. While that’s a solid piece of advice for anyone, it’s especially relevant for expats, who could find themselves needing funds for an emergency flight back home should someone experience a medical emergency.
And if you think you won’t need a contingency fund because of the enormous tax-free salary you’ll be earning with your new job in the UAE, be forewarned. A full 83% of expats in Dubai admit they haven’t saved a dirham, according to a recent Khaleej Times article. Many of the expatriates surveyed blamed the cost of living. “There are lots of different factors why it’s difficult to save,” says one, “but the cost of living here is disproportionate to earnings. Nowhere else in the world do you have to pay the entire year’s rent in two cheques or four cheques.”
Another agrees: “High utility prices and costly groceries don’t help. In addition, eating out, drinks and activities are more expensive here than in London and New York.”
And when you do get to a point where you’re earning enough to be able to invest and save, the complications can kick into high gear.
In a case study of an American living in Hong Kong, wealth advisor Andrew Fisher at Maxim Global describes how complex the financial situations of expatriates can get. His client, who has a net worth of more than $5 million, owns three properties in three countries, plus “a significant amount of financial assets in company stock and options, qualified savings accounts in multiple countries, accumulated cash and diversified liquid investments.”
For just that client, Fisher has had to:
Investment advisor Tom Zachystal, who specialises in investment management and financial planning for expatriates at ExpatFocus, writes that US expatriates are finding it more difficult to successfully resolve financial matters of late. He blames FATCA (the Foreign Account Tax Compliance Act), which “has led to both US and non-US financial institutions being reluctant to deal with American expats.”
In a related article, Zachystal explains that the regulations, together with the KYC (“Know Your Customer”) rule, exist for a good reason: They make money laundering and tax evasion harder. Unfortunately, the people most affected are regular Americans working abroad, whose accounts simply aren’t large enough for the banks or brokerage companies to bother with burden of complying with all the additional reporting and account overseeing required. Those accounts are either frozen so their investments can no longer be changed or closed altogether.
But it’s not just American expats who have to navigate increasingly complicated tax laws.
Canadian expatriates, too, face “progressively stringent tax regulations,” warns the Expat Group, a Canadian firm that offers tax, wealth and life management services for Canadian expats as well as non-residents and foreigners moving to Canada. In fact, they add, “non-residents of Canada may be subject to Canadian tax on certain Canadian-source income.”
The lesson here is to make sure you research and discuss with a financial advisor any changes to tax laws of your home country and of your country of residence that might impact your investments and earning power.
The Global Tax Navigator at HSBC is a helpful tool that provides a quick overview of tax information on dozens of countries. A glance will tell you, for example, that the national income tax rate in Germany for residents earning 251,000 euros per year is 45%, and that Germany has double tax treaties with 92 countries. On the other hand, while Switzerland has the same number of double tax treaties, an average tax rate can’t be calculated due to its multi-layered taxation system.
This last fact means you’ll need to know the canton and municipality in which you’ll be living in order to determine the actual total taxes you’ll be paying. Having this information on hand can serve as a negotiating factor with an employer and must be known in order to be able to financially plan for your future with any degree of accuracy.
In BBC’s Money Talk, Richard Musty, Expat Banking Director at Lloyds TSB International, writes that people living overseas should really think about exchange rates. While his example is that retirees living mainly on small UK pensions in eurozone countries were badly affected when the pound plummeted in value a few years ago, it’s still a matter of concern to working expats who are trying to make wise investments and save for their own futures.
Depending on which way the currency moves, expats can of course benefit from exchange rate fluctuations. “The key point,” writes Musty, “is that they present a risk to your spending power. This risk can be reduced by shifting your money into the currency that you are most likely to need it in for the long-term.”
If you’ll be moving back home within the next year or so, he advises you to leave much of your savings in your home currency. If, however, your plan is to take up permanent residence in the new country, then you’d be in a better position to move all of your money from home into that local currency.
We’ve looked at what happens in the event of an expatriate’s death before, specifically with respect to inheritance law in the UAE. More generally, though, while making financial plans, you should also research local estate law and include instructions that deal with your assets and property should anything happen while you’re overseas.
Nicole Gallop Mildon, solicitor and diplômée notaire at the UK law firm of Sykes Anderson Perry, recently wrote about expat death and how to help family members back home deal with an estate in a foreign legal system. In her piece for The Telegraph, she lists some steps expatriates should take that will help loved ones manage in event of death abroad:
And finally, writes Gallop Mildon, “get expert advice from a firm specialising in cross-border law for individuals. Give copies of their advice and their contact details to your executor and to your family.”
Original Posting: http://www.currencyfair.com/blog/tips-managing-finances-abroad/