Jonathan Garbutt and David Piccolo quoted by Canadian Capital.
Jonathan Garbutt and David Piccolo quoted in the Winter 2011 edition of Canadian Capital. Canadian Capital is a magazine for Canadian entrepreneurs and wealth-owners.
Beware Net-Worth Assessment
Canada Revenue Agency has many tools to detect and pursue tax avoidance, warn Jonathan Garbutt and David Piccolo. The article looks at a few such tools, including specifically high-net worth assessments. In a net-worth assessment, says David Piccolo, Canadian tax authorities will look into the taxpayer’s lifestyle to determine if it is roughly equivalent to her income and net worth. If a discrepancy is found, that amount will be considered taxable income.
However, any (re)assessment based on a net worth audit needs to be examined very closely. The net worth audit requires CRA to make a number of assumptions, which are all rebuttable. CRA will often classify payments or receipts in the least favorable light if it is not apparent on the face of the source document. However, these classifications can also be rebutted with additional evidence, whether verbal or written. Finally, there may be extraneous information collected by CRA that may cast the taxpayer in an unseemly light. This extraneous information may also be rebutted based on either its relevancy or correctness.
If you or your clients have been audited or assessed by the CRA using the net worth or other indirect audit method, please contact David Piccolo at firstname.lastname@example.org or at (416) 847-7300.
Offshore Trusts as Tax and Estate Planning Tools
Jonathan Gurbutt discussed the use of offshore trust structures that may be available as tax and personal planning tools to Canadian enterpreneurs. “There are non-tax benefits to offshore trust planning, and if done properly, with real trustees and underlying structures that actually work, there can be tax savings,” said Jonathan.
Typically, an offshore trust settled by a Canadian resident would be deemed, for certain purposes, to be resident in Canada. As a result, the income earned by an offshore trust established by or for the benefit of a Canadian resident would generally be subject to tax in Canada. As such, an offshore trust would be typically established for non-tax reasons, such as asset protection or multi-jurisdictional estate planning. For example, an asset protection trust may be established specifically for that very reason – to separate and protect the settlor’s assets from the future creditors and allow a transfer of such assets to the designated beneficiaries, who are typically children, grandchildren or other family members residing in Canada or overseas.
In certain circumstances, offshore trusts may allow to achieve significant tax savings. For example, an immigration trust allows a new immigrant a deferral from Canadian taxation for up to 5 years for all business and investment income earned by the offshore trust and underlying business and investment structures. Other solutions may include certain non-resident insurance plans for Canadian residents. For example, a so called Canadian-compliant offshore private placement life insurance (OCCPPLI) features an offshore trust. When properly structured, a privately managed Canadian-compliant offshore private placement life insurance may allow Canadian residents to put their income earning assets into a non-resident structure and earn income without current Canadian taxation. Although the main purpose of such structure is to accumulate funds for life insurance purposes, in certain circumstances a Canadian resident may access the funds earned by Canadian-compliant offshore private placement life insurance on tax favourable terms.
The offshore tax planning and related tax compliance have become increasingly complex. If you or your clients are interested in discussing the underlying structures and the myriad of potential opportunities for applying offshore trust or wealth planning, including Canadian-compliant offshore private placement life insurance, to provide your clients’ tax, estate planning and asset protection needs, please contact Jonathan Garbutt at Jonathan.Garbutt@taxchambers.ca or at (416) 847-7300.
TaxChambers LLP is collaborating with Andersen Global® in Canada.