Chapter 14 Flashcards
International Investing
What is the minimum number of days you can stay in the country and be considered a Canadian resident?
You are deemed to be a Canadian resident for tax purposes for the entire year if you stay in the country for 183 days or more
Describe domicile in common law countries
In common law countries, domicile is distinguished from residence to mean a more long term link or association with a country. (is it regarded as your home)
In the absence of an income tax treaty, the following applies:
- Source and residence countries may levy whatever taxes they wish under their domestic tax laws
- Attempts to enforce tax compliance across the boarder to another country will require the country’s cooperation
Under an income tax treaty, the following applies:
- Exclusive taxing rights to the country of residence
- capital gains not related to immovable property
- royalties
- any type of income not covered by a specific provision in an income tax treaty - Limited tax rights for the country in which the income is sourced
- interest income (WHT)
- dividend income (WHT)
Describe a trustee
- administers the assets on a fiduciary basis
- legally owns the trust’s assets
Potential uses of trusts
- cross border estate and succession planning
- tax efficient international investing
- maintenance of funds for family members
- asset protection from creditors
- charitable reasons
How are trusts taxed in Canada?
- as individuals
- they are only taxed on the income remaining in the trust after any distributions
What is the difference between a foundation and a trust?
Unlike a trust, a foundation is a distinct entity that has its own separate legal personality. It can therefore hold assets, contract with third parties, and sue or be sued in its own name. (similar to a company)
Describe investment base tax havens
-offshore centers with very low or no tax on foreign source income with no WHT and few if any international tax treaties
Describe base havens for business activities
- off shore centers with amore developed business infrastructure and either low tax or exemptions from tax
- ie. Bahamas, Belize, Virgin Islands, Hong Kong, Switzerland
Describe treaty havens and special concession havens
- either traditional offshore centers with reasonable domestic tax rates or onshore centers with special tax regimes that permit their treaty networks to be used for offshore activities and treaty shopping
- ie. Delaware (US), the Netherlands
Describe residence havens for individuals
- tax will only ever be one consideration but certain jurisdictions offer great fiscal attractions for wealthy individuals
- ie. Dubai
Describe the 3 domestic anti avoidance measures for low-tax countries
- Through controlled foreign company rules that seek to tax what they regard as the abusive use of foreign companies by requiring resident shareholders to report foreign income as if it were in their own hands
- Through general anti-haven legislation that catches anything not covered by the general controlled foreign company rules
- Through general anti-avoidance legislation when the structure employed complies with all specific domestic tax rules but is regarded as overly aggressive and abusive (GAAR)
What is CFC?
Controlled foreign company=CFC rules
-rules to stop tax on foreign income from being deferred or avoided
Describe the three stage test used to determine if GAAR applies
- Was the transaction an avoidance transaction?
- If so, was any tax saved or deferred?
- If so, were the transactions undertaken primarily for purposes other than to obtain a tax benefit?
