Despite the recent story about one of the Facebook founders giving up his US citizenship to move to Singapore for tax reasons, according to Robert Keats, in his latest book, he suggests that for Canadians in search of a tax haven (and warmer climate) US is the superior destination compared to traditional tax havens; and this is due to the U.S.-Canada Tax Treaty. In fact, while he argues that the decision of where one should locate is (and should be) lifestyle rather than tax considerations driven, he shows that the U.S. is not just superior to ‘traditional tax havens’ but for some Canadians it is superior to staying in Canada.
In this short and very readable book, Mr. Keats takes his readers through:
-his definition of ‘traditional tax haven’ (no or low income tax, bank secrecy, no tax treaty, residency easily established, no minimum time spent in country, stable government able to enforce laws) vs. a ‘real tax haven’ (preferable climate, lower taxes, lower living costs yet able to enjoy their Canadian family/social benefits)
-U.S.-Canada tax treaty (much less frequently changed than each country’s own tax laws) is the source of the ‘haven’-like benefits encompassing dimensions of: living costs (including housing costs), lower taxation levels, lower investment costs, superior medical access, superior climate, no social restrictions (access to Canada and friends/family). He explains in detail the U.S.-Canada Tax Treaty, its benefits and the protection it provides to Canadians moving to the U.S.
-despite what one might suspect, medical insurance can be obtained at ‘reasonable’ prices even with pre-existing conditions
-U.S. RIAs (registered Investment Advisors) are protected by the fiduciary duty they owe to their clients, whereas there is no equivalent legal protection in Canada
-he does a thorough comparison of taxation of an incremental $100,000 of income at highest marginal tax rates in Canada (about 50% in Quebec and Nova Scotia at a fairly low threshold) with a 30% tax rate in Florida (not the highest, 35% federal rate kicks in only around $400,000, and no state income tax in FL) and typical ‘traditional tax havens’. He looks at the 13 types of income Canadians might receive: interest income, US corporate dividends, Canadian qualified dividends, Canadian real estate capital gains, other capital gains, pension & annuity income, periodic income from RRSP/RRIF, lump sum income from RRSP/RRIF/LIRA/LIF/etc, CPP/QPP, OAS income, etc.
-the U.S.-Canada Tax treaty driven advantages appear to be primarily due to: foreign tax credits resulting from Canadian withholding taxes, RRSP/RRIF withdrawals at much advantaged tax rates, CPP/QPP advantaged with foreign tax credits, and no OAS claw-back
-he also discusses what he calls the “3 myths” associated with a move to the U.S.: substantial exit tax, becoming subject to U.S. estate taxes, and having to deal with the IRS
-U.S. immigration options are also covered, including the pending “retirement visa” which though does not grant permission to work in the U.S., does allow 365-day/year presence
-Keats shows the superior U.S. tax outcomes in all cases if proper planning and execution is done, for the given assumptions and current tax rates (I am not a tax expert but I suspect different individual circumstances like: current tax brackets, source/destination locations and corresponding tax rates, as well as unknown (but according to some imminent) future tax changes in the U.S. might result in different outcomes; but again Canadian tax changes might not be far behind.)
While clearly not applicable to everyone (more likely applicable for high income/asset individuals and I don’t know what the numbers might look like if somebody was moving from a low tax province like Alberta to a high tax U.S. location like NYC), Keats shows that there are significant benefits even for a couple of teachers pulling in $90,000/year income from RRSP, investment and government/occupational pension sources. It is an interesting and informative read; of particular interest to many who might be contemplating a lifestyle driven permanent or snowbird level U.S. living in the future. The author recommends that to get the full benefits of such a move, one needs Canadian and U.S. cross-border tax, accounting, investments and financial-planning expertise/qualifications, and you should not attempt it alone.
I am sure what he has to say is correct, except for the estate taxes, which means you will loose 35 – 50% of your wealth upon your death in the US. A tax of your assets on your death is nothing more than expropriation of your assets by the US government.
Trr3 – estate taxes can be avoided with the proper ownership structure. The estate tax is a societal decision to rechurn hoarded money. Unfortunately- the default position on the switch is ‘expropriate’. However- it is relative simple to satisfy uncle sam’s desire to keep the money in play- through trusts and /or a us holding company. A big ass life insurance policy can satisfy in many instances. Not simple- but any secondary property is a messy issue anywhere in the g22. tax is sheltered only within the concept of principal residence of a citizen of some sort. so the concept needen’t be frightening.
Tangentially- i have discovered that the usa is not- as legend has it- a very good place for entrepreneurs. My small company has to file tax returns in every single state in which we get a sale. So 17 tax returns in my case. (140 pages annually- 3 man weeks of labour- regrdless if the revenue is modest). Furthur- the tax rules vary a lot between states, so its not a simple matter to decide to do business there. Also- since Americans get health care from their employer- only illegals will work for a small company- in my case i use PHds- so i cannot compete with big comanies in attracting collaborators. Finally- the banks are worse than canadians in lending only on property- no other criteria. So you must source operating capital from byzantine sources. Also- if you lease space- you often must sign lenghty leases- so its hard to germinate a small foray- as you must assume big risks out front. This discourages all but the grandest of schemes. So not really a haven for entrepreneurs. Canada is actualy much better on those and other ‘enablers’. But it is all the hype that galls me- I will concede that the individual can pay a lot less tax there – But the usa is not an entrepreneur’s haven. It is a “Big Business” haven.