Canada Asset Protection
Learn About Canada As An Offshoring Option
July 10, 2004
By Monish Datta
Canada asset protection involves the mobility
of property and persons as well as the globalization
of business activities.
Professional services and communications
means have pretty much done away with economic boundaries,
with the result that business people and investors
regularly complete international transaction of every
nature.
On the other hand, no doubt stimulated by the startling number
of legal lawsuits commenced against business owners, directors,
professionals and investors, several foreign jurisdictions have
introduced legislative measures to guarantee the protection of assets
against creditors.
In general terms, a foreign trust is established by a legal document,
i.e., a trust deed, pursuant to which a settlor transfers property
to the control of a trustee for the benefit of a beneficiary. In
most cases, while the planning will protect the property of an individual,
it can protect the property of a corporation.
Often, the establishment of an asset protection trust in Canada
also includes important estate and tax planning aspects. Several
legal and tax restrictions and other financial and practical factors
must however be carefully examined so that planning of this nature
can be effective.
It is imperative to consider the applicable law and analyze its
fundamental elements and its specific application in the course
of the planning process. Several foreign countries, generally tax
havens like the Bahamas, the Cayman Islands and Barbados, have adopted
favourable laws to better protect assets against creditors. Usually,
the applicable legal provisions will include yhe validity of a judgment
rendered in Canada against a debtor and the recognition of enforcement
of such decision in the foreign country;
The confidential nature of information concerning the administration
of the trust in the foreign country; favourable provisions to change
the trustee, to amend the trust deed and to move the trust to another
foreign country.
Tax Considerations
The main intervening parties in the foreign trust are the settlor,
the trustee, the beneficiary and the protector. The trustee must
be a non-resident of Canada so that the trust is not considered
a resident of Canada and taxable on its world-wide income. While
the protector may be a resident of Canada, it is preferable that
he or she not be to avoid any risk of attack by Canadian revenue
authorities. The settlor and the beneficiaries may or may not be
residents of Canada.
It is possible to set up a foreign asset protection trust to reach
certain tax and estate planning goals and to protect assets. However,
an effective trust must be well-structured. Canadian tax legislation
contains several measures, sometimes vague in scope, which may hinder
such planning.
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