LIVING AND WORKING IN CANADA

When considering expatriating to Canada, whether on a permanent or temporary basis, there are a great many factors to be considered, and it is essential to obtain the advice of a professional knowledgeable in Canadian immigration procedures and tax law. However, there now follows a basic rundown of the issues that will need to be considered before, during, and after immigration to Canada.

In order to gain entry to Canada, there are two basic visa types that foreign nationals can apply for - employment authorisation visas, and immigrant visas (within the latter category, a distinction is made between business and personal immigration). Employment authorisation visas will usually confer permission to live and work in Canada for a limited period only, and there will normally be restrictions on the type of work that can be undertaken by the expatriate. In and of itself, an employment authorisation visa will not confer permanent residence status.

Immigrant visas, on the other hand, confer permanent residence status (with all the rights and responsibilities that entails), and allow the expatriate to live and work anywhere in Canada. If you enter the country on a permanent resident visa, notwithstanding unforeseen events, you can usually apply for Canadian citizenship after 3 years of residence. Applications for 'personal' visas can be made to the Canadian Visa Office with responsibility for your geographic region, although business immigration applications must be made to one of nine designated visa offices specialising in this type of application.

However, applications for permanent resident status can take up to a year to process (the official line is 8 -12 months), although in certain cases (for example the immigration of key skilled expatriate employees), the application can sometimes be 'fast tracked' by the government.

There are stringent requirements for expatriates hoping to enter Canada, and extensive documentation, the details of which vary from visa office to visa office, but which should usually include evidence of employment, evidence of education, and a police record proving an absence of criminal charges, is required. Potential immigrants are assessed (and awarded points) on a number of criteria including: education, training, experience, occupation, arranged employment, demographic factor, age, language skills, and familial links with the country. These criteria are standardised throughout the country, with the exception of the province of Quebec, where greater emphasis is placed on French language skills and familial ties with the province.

Potential immigrants must also undergo, and pass a medical examination to demonstrate that neither they nor their dependants will represent a danger to public health and safety, nor have any ongoing conditions which could place excessive demand on health or social services in Canada (for example serious diseases requiring long term care or hospitalisation, or ongoing psychiatric disorders).

An individual is considered resident for taxation purposes (and as such is taxed on world-wide income from commencement of residence) if they fit one or more of the following profiles:

• They are present in the country for more than 183 days
  
• They regularly, normally, or customarily reside in Canada in a settled routine
  
• They have established residential ties in Canada such as a dwelling place, husband or wife, dependants, personal and real property, or social ties.

Other indices of tax residence include: habitual visits to Canada, location of fixed and liquid assets, location of personal belongings such as clothing, and location of immediate family. Non-residents will usually only pay federal income tax on certain types of Canadian source income (for example income from employment in Canada, income from business activities there, and taxable gains from the disposal of 'taxable Canadian property'), and provincial tax on a similar source basis.

Canadian taxpayers, however are liable for income tax on their world-wide income, and also a provincial tax which is usually around 50% of the federal rate, although this varies from province to province.

Federal tax rates for 2007 are as follows:

• 15.5% on the first CAD37,178 of taxable income;
• 22% on the next CAD37,179 of taxable income (on the portion of taxable income between CAD37,178 and CAD74,357);
• 26% on the next CAD46,530 of taxable income (on the portion of taxable income between CAD74,357 and CAD120,887);
• 29% of taxable income over CAD120,887.
  

Federal tax rates for 2008 are as follows:

• 15% on the first CAD37,885 of taxable income;
• 22% on the portion of taxable income between CAD37,886 and CAD75,769;
• 26% on the portion of taxable income between CAD75,770 and CAD123,184;
• 29% of taxable income over CAD123,185.

Federal tax rates for 20098 are as follows:

• 15% on the first CAD40,726 of taxable income;
• 22% on the next CAD40,726 of taxable income (on the portion of taxable income between CAD40,726 and CAD81,452);
• 26% on the next CAD44,812 of taxable income (on the portion of taxable income between CAD81,452 and CAD126,264);
• 29% of taxable income over CAD126,264.

While the February 2005 Canadian budget took action to cut the personal income tax burden, including an increase in the tax-free income limit for all Canadians to CAD10,000 in 2008, and the elimination of the 30% limit on foreign property held in pension and registered retirement savings plan investments, the proposals were lost in the change of government at the end of the year.

However, Tax-free Savings Accounts (TFSAs) were later announced by Conservative Finance Minister Jim Flaherty in 2008. The TFSAs (introduced in 2009) and will allow all Canadians over the age of 18 to contribute up to CAD5,000 tax-free annually.

However, provided the structure is set up prior to immigration, new expatriates can shelter foreign source investment and other income in an 'immigrant trust' (usually established in a suitable offshore jurisdiction) for the first 5 years of residence, after which it becomes liable for Canadian taxation. However, the trustees must not be Canadian residents.

In Canada, a resident individual's capital gains are included as part of his annual assessment for income tax. From a high of 75%, the 'inclusion' rate has fallen to 50% at the time of writing.

Canadian foreign reporting requirements mean that residents must report ownership of foreign property worth in excess of CAD100,000, transfer or loan money, or property held in a foreign trust or company, and distributions or loans from foreign trusts in which they are beneficially interested. (Which means that the aforementioned immigrant trust must be reported, but at the moment is still protected from Canadian taxation)

Although the above reporting requirements apply to both expatriate residents and Canadian citizens, there are in fact some reporting exceptions for expatriates. These include: property used in an active business, interests in trusts where the expatriate is the beneficiary, but not the settlor (for example family trusts), any interests in retirement plans which are qualified plans in the country of establishment (and therefore tax exempt), and personal use property, including cars, boats, and holiday homes strictly for personal use.

So - the bottom line. Is Canada an attractive location for international expatriates? There is certainly evidence to suggest that the Canadian government is endeavouring to make it so. Surveys conducted in recent years have revealed that as many as 300,000 positions in Canada are vacant due to a shortage of qualified labour. 440,000 work rights visas were made available between 2004-2005.

A study published by the CFIB in April 2006 revealed that the situation with regard to long-term vacancy rates was ongoing, with an estimated 233,000 positions in small- and medium-sized businesses unfilled for at least four months in 2005.

The fact that there are not sufficient Canadian citizens qualified to fill certain posts has eased the immigration process for skilled expatriates substantially, and the Canadian government will sometimes 'fast track' the application of a key expatriate employee or professional.

Although income tax rates for residents have been reduced in recent years, they are not really anything to shout about. There are numerous incentives, both on a federal and provincial level aimed at promoting research and development, small business, and personal saving, but other than the immigrant trust provision (which is not to be sneezed at), and the foreign reporting exceptions, there are no major tax breaks for professional expatriates immigrating to Canada. There is also a departure tax imposed on individuals seeking to change residence, whereby all the individual's capital assets are deemed to have been sold at a fair market value on which capital gains tax is payable. However, expatriates who have been resident in Canada for less than 5 years are exempt from the departure tax.