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As part of our US expatriation series we look at how a move to Canada could be an intrguing choice for those considering leaving the US
Those who live in high-risk areas that are prone to natural disasters like forest fires should be all too familiar with ‘Go Bags’. A Go Bag is usually a sturdy backpack or suitcase that contains essential items in case one needs to evacuate quickly. What makes them so invaluable is that the contents have been carefully and thoughtfully selected in advance. They ensure its owner’s comfort and security in accordance with their unique requirements. It’s not thrown together in haste as they flee out the door.
I may not live in a wildfire zone. but i’m very familiar with the concept of Go Bags. They relate to my area of expertise (tax and immigration) and my clients – normally HNW individuals who are concerned about the long-term personal and financial security of themselves and their families.
Why and how HNW clients are leaving the USA
In a recent interview and my last few blogs, I have described some of the current motivations of certain American clients. They are all interested in securing the “Fire Insurance” of a second residence and/or citizenship. These include:
- Increasing violence against particular groups based on race, religion or sexual orientation;
- Random gun violence; and
- The populist Tax the Rich political environment.
These interview and blogs explored the most often expressed reasons “Why?”.
And in two other series of articles, I explained the “How?”. This was based on whether these clients intended to be an American living abroad, or if they intended to use this special “fire insurance” as part of their “Fire Escape Plan”. This would mean them potentially legally and permanently leaving the US and its tax system.
In this and future blogs I will explore various options for the “Where?”. We’ll start with a country that is pretty familiar to most Americans – Canada. To be transparent – Canada is my homeland and a jurisdiction to which I have sent many clients for well over three decades. However, I promise that this analysis will be a result of my normal agnostic clear-eyed approach.
Issues to consider when assessing Canada
There are a number of “soft issues” when considering Canada including:
- Multicultural population with significantly lower levels of prejudice than US;
- Booming economy (10th largest in the world) especially in the tech sector;
- Lower crime rate than the US…including gun-related crime;
- English widely spoken with large immigrant communities speaking other languages;
- Politically stable with generally centralist parties, and with individual rights enshrined in a Charter of Rights and Freedoms
However, when considering moving your family to Canada, there are certain key areas which must be properly addressed.
Taxation in Canada
Canada has a reputation amongst most Americans as a high tax country. Indeed, a casual examination of federal and provincial tax rates seems to support this reputation. However, a deeper dive shows that this is far from the reality! To understand why, one needs to first understand the “Tax Equation”:
Taxable Income x Tax Rate = Taxes Paid
or to put it another way:
TI x TR = Tax $ Paid
The applicable Canadian Tax Rate is established looking at:
- Province of Residence; and
- Ordinary Income (OI) or Capital Gains (which is 1/2 of the OI rate)
The Tax Rate is fixed by the Canadian and Provincial legislatures. However, legal pre-immigration tax planning allows new Canadian tax residents to reduce or even eliminate all non-Canadian source income and capital gains from Taxable Income. In short, with proper planning the actual tax paid on non-Canadian source income and gains can be minimal or even zero!
In addition to this, Canada does NOT have either gift or estate tax.
All this means Canada can actually be considered a tax haven (as I explain in this White Paper)!
One other thing to note is that Americans can acquire a Work or Study Permit in Canada. They can even secure Permanent Residence without automatically becoming a Canadian taxpayer. This is because Canada only considers an individual a taxpayer if:
- they spend more than 183 days physically present in Canada; or
- they have “centralised their mode of living in Canada”.
In contrast, a US taxpayer is anyone who is a citizen, Green Card holder, or who spends too much time in the US.
Healthcare in Canada
It is commonly known in the US that Canada provides universal health care to all citizens, permanent residents, and work/student permit holders. However, what is NOT known is that Canada also has a well-developed private health care industry. This allows Canadian residents to supplement this government care to overcome any shortcomings such as wait times for care. In addition, it is worth remembering that approximately 90% of the population lives within 150 miles of the US border. This means that Americans who want to access specialist American medical facilities like the Mayo Clinic or Sloan Kettering can do so just as easily after they relocate to Canada.
As of 2017, Canada spends over $8,000 per person on healthcare. Despite spending about half of what the US does per capita, Canada’s quality of care has been rated significantly higher. As a result, Canada has one of the world’s higher life expectancy rates at just below 82 years. This ranks 25th in the world (the US ranks 60th at just over 77 years)
Education in Canada
Canada spends more on education per head than any other industrialised nation. It’s been named the most educated country in the world. Canada’s K-12 public education system is regarded as one of the world’s best. Canada is also home to some of the world’s top universities. McGill University, the University of Toronto and the University of British Columbia rank among the world’s top 100 institutions. According to Statistics Canada, 54% of Canadians 25-64 have a post-secondary degree. An additional 11% have completed an apprenticeship or a trades’ certificate. In some provinces the cost of tuition is fully or partially covered for low-income students.
How to move to Canada
There is a great deal of confusion about the various types of statuses that an American family might consider acquiring in Canada. The most appropriate status and/or combination of statuses depends upon factors icluding:
- the family configuration
- budget
- timing
- and educational and work experience of each family member.
As this chart indicates, there are a variety of possible pathways and combinations available to Americans. These include some unique ones due to the current trade agreement between the two countries. The determination of which path and/or combination is best for a given individual or family can only be done once the specific individual and family information and intentions are understood and analysed.
Final Thoughts on considering a move to Canada
Once the myths and misinformation surrounding issues such as taxation and medical care are dispelled, Canada often turns out to be a very attractive option for American families’ Backup Plans.
Moreover, a Canada solution can fulfil the role of a relatively inexpensive “Go Bag” insurance policy. It may be an invaluable backup plan should an American want to relocate quickly as a result of events at home… from political issues to natural disasters like hurricanes.
A Canada solution can also be used as part of a sophisticated expatriation strategy. This would be designed to significantly reduced global tax burden without compromising the lifestyle that all family members previously enjoyed in the US.
The key to success is to have proper advice that will ensure that:
- Your Backup Plan is sellable “at the breakfast table” to all family members; and
- That you do not jump out of the US tax pot… into the Canadian tax fire! That you do so carefully…with a proper plan securely tucked away in your Go Bag as you walk out the door.
