I am writing you today as if I were your tax advisor and you were a young couple deciding whether to live in Canada or the UK. My fear is that the popular press (and possibly others) are trying to unfairly influence by providing outright misinformation about the tax ramifications of such a move. Here are a few points that I wish to clarify:
1) Double Taxation:
Both Canada and the United Kingdom tax residents on a world-wide income and capital gains basis. (Note: I am very familiar with the UK remittance system, but this is not applicable to as Mr. Windsor clearly has a domicile of origin in the UK. Likewise, I am very familiar with the US citizenship based taxation system but this tax issue will remain the same whether Ms. Markle and your son are tax resident in either the UK or Canada). However such income will NOT be double taxed as a result of the “Convention Between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland For the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital Gains”
2) Taxation of Frogmore Cottage:
This is a UK situs asset and your UK principal residence. However, I also understand that neither of you are listed as the owner, but are merely tenants. Whether or not you are subject to an obligation to pay rent or not to the Crown Estate, should in no way be impacted by the additional factor of being UK non-resident for tax purposes. Likewise, regarding any recent renovations done to the property, those were at the cost of the owner. Therefore, any capital appreciation of this property will accrue to the owner not yourselves.
3) Future funds from Mr. Windsor’s father:
For Canadian purposes, receipt of funds from Mr. Windsor’s father or any other family members would have to be examined to determine if they are a) gifts and therefore not considered taxable income by Canada; OR b) employment income which would be taxable by both the UK and Canada BUT which would not be double taxed as a result of the aforementioned tax convention.
4) Future revenue:
The taxability of such revenue would depend on the following factors:
- Employment Income: eg. Ms. Markle working as an actor;
- Business Revenue: eg. Licensing revenue
- Charitable Revenue: eg. Revenue generated by a non-profit organization
Once the taxability is determined, then one would need to look at the source of this income to determine which of the countries would get actual tax revenue and which would only note a foreign tax credit. Furthermore, legal pre-immigration tax planning will have a significant impact upon the amount of tax paid to either country.
5) Estate Tax:
It is worth noting that unlike the UK and the US, Canada does NOT have estate taxation. It is for this reason that Canada is actually an attractive tax home for both UK and US nationals and domicilaries. This is an area that has the opportunity for significant future tax savings as both future heirs and as future deceased persons, and should be properly planned.
6) Receiving Advice from tax authorities such as HMRC and CRA:
The wisdom of seeking and relying on such advice is analogous to seeking advice from police authorities about the best defence strategy for your upcoming criminal trial. Their job is NOT to provide you with a professional assessment as to the best strategy to legally minimize your tax strategy. As both of you are highly intelligent adults, I am sure that you would agree that it is best that you seek qualified professional advice on this obviously complex decision.
In conclusion, I hope that this information is helpful to you in avoiding making a decision on the future course of your lives based on misinformation regarding taxation.
David S. Lesperance JD