Evolution in Financial Security: Canada Bound?

Pinnacle Digest writes: Safe jurisdictions to hold and build wealth are always changing as politicians and law makers shape the global financial landscape. Our newest Pinnacle Professor, Greg McNally, explains that with the OECD, EU and US continuing to put pressure on traditional financial centres, clients from emerging markets such as Russia, China and Brazil are now looking to new jurisdictions to plan for their financial security.

Canada has not historically been at the top of the capital allocation list, but that could be changing as our tax environment, aided by political and financial stability continue to enhance its appeal.

There was an interesting outcome in the case of Fundy Settlement v. Canada, 2012 SCC 14 [April, 2012] which the Author leans on to highlight this changing mentality. The Supreme Court of Canada ruled that a trust should be taxed where its "mind and management" is located, not where the trustee is resident. Obviously this has the potential to be abused as the "mind and management" may be many miles from the watchful eyes of Canadian law authorities. Although these locations could be the same, tax residency for Canadian purposes is now determined to be where the principal place of business of the trust is conducted.

In layman terms, this means a company can be incorporated in Canada and then enter into a trust indenture as trustee (either on declaration, or settlement) on behalf of a client. If the trustee then engages a co-trustee or a trust administrator from outside of Canada to perform the day to day management of the trust, no tax consequences will arise in Canada.

The requirement of the trust (or "Transnational Trust"), to engage a non-resident co-trustee or trust administrator, makes the Transnational Trust a perfect fit to work with financial institutions already established in places like London, Singapore or Hong Kong.

The writer argues that, "Given the ever increasing public stigma in dealing with traditional tax havens and the changing policies surrounding due diligence criteria amongst various financial institutions, Canada is a perfect substitute for standard planning products such as trusts and companies in a global tax and asset protection plan."

It seems as if Canada may be adding 'tax haven' to its long list of economic advantages, which may or may not contribute to it being one of the most politically and financially desirable countries in the world.



Read this article...