Guide. InformatIonal gui de to immigration trusts

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1 Guide InformatIonal gui de to immigration trusts Disclaimer: The material contained in this document is for information purposes only and is not intended as an offer or solicitation for purchase or sale of any product or service, nor is it advice or a recommendation to enter into any transaction. We have endeavoured to offer current, accurate and clearly expressed information. However, since inadvertent errors may occur, relevant legislation and regulations may change and/or the application of laws and regulations may vary, the information may be neither current nor accurate. All individuals should obtain specific professional advice with regard to the respective tax or other professional area. No action should be taken or omitted to be taken in reliance upon any of the information provided and in no event shall Cidel Bank & Trust inc., its subsidiaries, its directors, principals, agents or employees be liable for any direct, indirect, incidental, special, exemplary, punitive, consequential or other damages whatsoever including, but not limited to contract, negligence or other tortuous actions arising out of or in connection with any content of the information provided or other use hereof.

2 What is a trust? A trust is a legal relationship among three parties the Settlor, the Trustee and the Beneficiaries in which the Settlor gives property to the Trustee to hold for the Beneficiaries. At creation of the trust, the Trustee becomes the legal owner of the trust property and the Beneficiaries become the beneficial owners. The administration of the trust property is governed by the trust deed, which sets out the terms of the trust. Who is involved in the creation of a trust? The Settlor gives legal ownership of the settlement property to the Trustee. A Settlor can be anyone of legal capacity. Other parties may contribute to a trust through gift or sale once the trust is created, subject to tax considerations. The Trustee holds the legal ownership of, and administers the trust assets. The Trustee has a fiduciary duty to the Beneficiaries to act in good faith in the administration of the trust assets. A Beneficiary is the beneficial owner of the trust assets. Any person can be a Beneficiary, and a trust can have multiple Beneficiaries. A Protector, if there is one, ensures that the Trustee acts in accordance with the wishes of the Settlor. The Protector is appointed by the Settlor and has the power to remove and/or appoint the Trustee. The Protector can be an individual or a committee. How is a trust created? A trust is created when the Settlor gifts the initial settlement property to the Trustee. This property may be a gold coin, silver wafer, currency, such as a one hundred dollar bill, or any other asset of value. Once the trust is created, almost any type of asset can become part of the trust property through gift or sale to the trust by the Settlor and/or other parties, subject to the terms of the trust deed and within the limits of applicable prudent investor restrictions. Why are trusts used? Wealth and Estate Management. Trusts are flexible structures and are often used to address the wealth and estate management needs of individuals and families. Trust deeds can be drafted to suit a Settlor s and Beneficiaries particular needs. For example, trusts can be used as a way to manage family assets passing to the next generation (as opposed to giving a family member a large legacy on death). Tax Planning. Trusts are often used to minimize taxes and probate fees. However, applicable legislation can vary significantly by jurisdiction, so it is essential to obtain advice from a tax professional to assess taxplanning opportunities. Asset Protection. Offshore trusts can offer asset protection from creditors and from political and social instability. Creditors generally cannot access trust assets, assuming that the Settlor is not insolvent or pending insolvency and that at least one to three years have elapsed since the creation of the trust (depending on the jurisdiction). The security of the trust assets against instability in the Settlor s home country is generally achieved through the choice of Trustees who reside in another country, thus transferring ownership of the assets outside of the home country. How is a trust terminated? A trust is generally terminated according to the terms of the trust deed. Further, in most jurisdictions, all of the Beneficiaries who have legal capacity can act unanimously to terminate the trust.

3 Immigration Trust Persons wishing to take up permanent residence in Canada are taxable on their worldwide income in Canada from the time that residence is established. However, the Canada Revenue Agency allows all immigrants an easy transition into the tax system through the use of an Immigration Trust. The creation of an immigration trust requires careful planning to ensure that maximum benefit is derived from this structure. What is an immigration trust? An immigration trust may be set up before an immigrant becomes a Canadian resident, or within 60 months after. If the trust is set up after the immigrant becomes a Canadian resident, the tax exemption period is reduced by the length of time during which the individual has been resident in Canada. Core Elements: The trust is resident offshore, with Trustees and Protector resident outside of Canada. All meetings and investment decisions of the trust occur outside of Canada; All of the trust s property is acquired from the non-resident Settlor (or within 60 months of his or her arrival in Canada); and The trust is discretionary. Why create an immigration trust? When an individual transfers income-producing assets into the trust, the income earned and capital gains realized by those assets will be exempt from Canadian taxation for up to 60 months following his or her arrival in Canada. This tax exemption will not apply to capital gains earned on taxable Canadian property, which includes Canadian real estate, Canadian private businesses, and assets used to carry on a business in Canada. In addition, the exemption does not apply to income generated by the trust assets that are distributed to Canadian resident Beneficiaries.

4 How do I maximize the tax exemption? To attain the maximum 60-month tax exemption, immigrants would become resident in Canada at the start of the year. This is because the tax exemption expires on January 1st of the year in which the individual has been resident in Canada for a period of 60 months. For example, for an individual who became a Canadian resident on December 1, 2007, the exemption would expire on January 1, However, if the same individual became resident on January 1, 2008, 31 days later, the exemption would expire on January 1, 2013, maximizing the 60-month tax-free period. By repatriating the immigration trust to Canada, the immigrant may be able to maximize the full 60-month period regardless of the month they become a resident. 1 What are the advantages of an immigration trust? In addition to the deferral of Canadian tax issues for 60 months and the general benefits of trusts as outlined above, the use of offshore trusts can further protect assets and income in the following ways: Privacy and confidentiality with respect to personal and financial information; Access to global investment markets and investments that may not be available to Canadian-based accounts; and may be held in a variety of currencies. How do I choose a jurisdiction for an immigration trust? The choice of an offshore jurisdiction is generally determined by the opportunities which each jurisdiction offers for asset protection, tax planning and confidentiality. Barbados is among the popular jurisdictions for international trusts. As a jurisdiction for international trusts, Barbados offers favourable legislation, a stable political environment, a positive attitude towards foreign investment, and a high degree of confidentiality for its international trust clients. The Barbados government does not impose taxes on trusts or on non-barbados assets where the Trustee is a licensed offshore bank and where the Settlor and Beneficiaries are all non-residents of Barbados. What happens after 60 months? After 60 months (or fewer, depending on the timing as discussed above), the immigration trust will be deemed to be resident and therefore taxable in Canada. At this point, the trust is deemed to have disposed of its assets at their fair market value 2 and then immediately re-acquired the assets at the same value, thereby achieving a stepped up adjusted cost base for Canadian income tax purposes. This ensures that the capital gains that have accrued in the trust before it becomes resident in Canada are not subject to Canadian income tax. From this point on, income and capital gains generated by the assets will be taxable in Canada. At this point, the trust can be wound up, retained offshore for asset protection purposes or repatriated to Canada. Alberta attracts many of the trusts that are repatriated to Canada because of its low income tax rates relative to other provinces. 1 All individuals are advised to obtain tax advice. 2 The fair market value is the price at which property would change hands between a willing buyer and a willing seller, assuming that both the buyer and seller have a reasonable knowledge of the relevant information and that neither is under undue pressure to enter into the transaction.

5 Immigration Trust What if I am a temporary resident of Canada? For an individual who settled an immigration trust prior to taking up residence in Canada, but resides in Canada for a period of less than 60 months, the trust assets will not be subject to a deemed disposition upon the individual s departure from Canada. What is the potential tax savings of an immigration trust? The following is an illustration of the potential tax savings of a properly structured immigration trust. The illustration assumes that the assets are offshore investments which generate income at an annual rate of 10% per year. The result is a tax savings of $669,300 over the five-year period (prior to set-up costs, fees and expenses). WITHOUT IMMIGRATION TRUST WITH IMMIGRATION TRUST Assumed Interest Rate: 10% Assumed Interest Rate: 10% Year 1 $2,000,000 Year 1 $2,000,000 $200,000 $200,000 $100,000 Year 2 $2,100,000 Year 2 $2,200,000 $210,000 $220,000 $105,000 Year 3 $2,205,000 Year 3 $2,420,000 $220,500 $242,000 $110,250 Year 4 $2,315,000 Year 4 $2,662,000 $231,500 $266,200 $115,750 Year 5 $2,430,000 Year 5 $2,928,000 $243,000 $292,800 $121,500 Total $2,551,500 Total $3,220,800 Net Savings of an Immigration Trust: $669,300 USD The illustration above is an estimation of the potential benefits of an immigration trust at the time at which this document was created. Changes in legislation could render the information herein inaccurate or incomplete. All individuals are advised to retain independent legal counsel before entering into any agreements or transactions.

6 Mission Statement WE deliver global solutions to enhance the financial well-being of our clients Core Values we live by the following core values: We are passionate about our company and its reputation. We are committed to the success of our people and clients. We believe in long-term relationships based on mutual trust and respect. We are serious about our custodial role. We continuously do things better through innovative solutions. We achieve more through teamwork. Cidel GRP 11/2010 Cidel is a leading independent global financial services company with offices in Canada, Barbados, South Africa, and maintains a presence in Bermuda and Latin America. Our clients include private investors, regional and international businesses and global-scale institutional investors. Canada Barbados south africa Latin America bermuda Contact Details Cidel Financial Group Inc. The Rowanwood Centre 1067 Yonge Street Toronto, Ontario M4W 2L2 Canada Cidel Trust Company Suite th Street SW Calgary, Alberta T2R 1J4 Canada Cidel Bank & Trust Inc. Suite One Hundred One Financial Place Lower Collymore Rock Bridgetown Barbados