Robert Keats, CFP-«, RFP, MSFP, is an internationally renowned expert in cross-border financial planning. Keats began his financial planning career in 1976 and is president and major shareholder of the largest financial advisory firm specializing in Canada-US cross-border financial planning. He has been a conributing editor to Canadian MoneySaver and his writing has been featured in The Globe and Mail, National Post, and the Los Angeles Times. He is the publisher of The Sunbelt Canadian newsletter and is on the editorial board for the Canadian Journal of Financial Planning. Keats is the author of The Border Guide, another title published by Self-Counsel Press. He lives in Phoenix, Arizona and can be found at www.keatsconnelly.com.
1 What Is a Tax Haven? 1 1. The Traditional Tax Haven 2 2. The Real Tax Haven Definition 2 3. Where Are the Traditional Tax Havens? 2 4. The Taxes of Tax Havens 4 4.1 Bahamas 4 4.2 Cayman Islands 5 5. Mexico Is Generally Not Considered a Traditional Tax Haven 5 6. The US Is a Good Tax Haven for Canadians 7 6.1 Do not fear the Internal Revenue Service (IRS) 8 6.2 The current US economic environment 10 7. Canada Is a Tax Haven 12 8. An End to the Traditional Tax Haven? 12 2 Why Traditional Tax Havens Don't Work 15 1. A Tale of Two Business Partners 16 Contents iv A Canadian's Best Tax Haven: The US 2. The United States Is the Only Tax Haven to Which Canadians Can Drive 19 2.1 Easy commute 20 2.2 Buying or building your dream home 21 3. Disadvantages of Traditional Tax Havens 21 3.1 Get me off of this island! 22 3.2 Tax havens are treaty deficient 23 3.3 Culture shock 24 3.4 Problems receiving proper medical treatment 24 3.5 Owning a vehicle in a foreign country 24 3 The Hidden Cost of Traditional Tax Havens 27 1. Full Disclosure Inadequate in Tax Havens 28 2. US Registered Investment Advisors Provide the Best Consumer Protection 29 3. Brokerage Firms Are Not Required to Act in the Consumer's Best Interest 30 4. Tax Haven Advisor Background Information Is Scarce 30 5. Focusing on the Fees 31 5.1 Management expense ratio (MER) 31 5.2 Undisclosed security markups 32 5.3 Multiple middle men 33 5.4 Asset protection trusts 34 5.5 Total fees a significant drag 34 5.6 No bargains 37 5.7 Tax-free options in the US 38 5.8 Financial leaches 38 5.9 Withholding tax diminishes returns 39 6. An Example of a Typical Tax Haven Island Family 41 4 Medical Considerations 43 1. Health Insurance Premium Rates 44 2. Plan Ahead 45 Contents v 3. Get the Best Medical Care by Using Both the Canadian and American Systems 46 4. Treaty Protection Necessary for Medical Treatment 47 5. Immigration Concerns for Medical Services 48 6. US Medicare Is Available 48 7. Medical Coverage for Those 75 and Older 49 5 Understanding the Canada-US Tax Treaty 51 1. Tax Treaties Should Be Embraced Rather than Ignored 52 2. Determination of Residency: The Tiebreaker 53 2.1 Choice and control of residency 55 2.2 Breaking Canadian ties for a traditional tax haven island 56 3. The Treaty Allows You to Run a Business in Canada from the US 57 4. No Need to Drop Your Canadian Directorships 58 5. Bronfman Rules 59 5.1 Don't wave red flags at the CRA 60 6. The Tax Treaty Prevents Double Taxation 61 6.1 Foreign tax credits 61 6.2 Exemptions 63 6.3 Withholding rates 63 7. Treaty Tax Rates Are Less than Tax Haven Tax Rates 64 6 Receiving Income While Living in a Tax Haven 67 1. Interest Income 69 2. US Corporate Dividend Income 69 3. Canadian Qualified Dividend Income 70 4. Canadian Real Estate Capital Gains 71 5. General, Non-Real Estate Capital Gains 73 6. Pension and Annuities 74 7. Periodic Registered Plan Withdrawals 75 8. Lump-Sum Withdrawals from RRSPs 76 vi A Canadian's Best Tax Haven: The US 9. Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) 78 10. Old Age Security (OAS) 79 11. Canadian Rental Income 81 12. Employment Income 81 13. Royalties 83 14. Who Won the Tax Haven Tax Challenge? 84 15. Real Results from Real People 85 15.1 High-level corporate executive 87 15.2 Business owner and entrepreneur 88 15.3 Broker 89 15.4 Business owner selling a successful business 90 15.5 Simply retired 90 15.6 Teachers 91 7 The US Is an Incredible Tax Haven for Small-Business Owners 93 1. Uninformed Advisors May Become Obstacles 94 2. The Power of Tax Free versus Tax Deferred 96 3. Two Common Myths 97 4. Larger Capital Gains Exemption Equivalent 98 4.1 Brother to brother 99 5. Operating a Canadian Business from the US 100 6. Tax-Free Rollovers on Investment Real Estate 101 7. The Unreal-Real Billionaire 102 8 The Greatest Opportunities: Retirement Savings Plans 105 1. Nearly All Registered Plans Are Taxed Identically 106 2. What Does the IRS Think of RRSPs? 107 2.1 RRSP phantom income 108 3. Locked-In Retirement Accounts 109 4. Hire a Professional Cross-Border Financial Planner 111 Contents vii 9 Realizing the Dream 113 1. Overcoming the Myths 117 1.1 Substantial exit tax 118 1.2 Subject to US estate taxes 119 1.3 Facing the Internal Revenue Service (IRS) 120 2. Dealing with the Canadian Departure Tax 120 2.1 Defer or eliminate the departure tax 122 2.2 Principal residence disposition on exit 124 3. Eliminating US Estate Taxes 125 3.1 No Canadian Estate Tax Holiday 127 3.2 Pre-US-entry trust 127 4. Immigration to a Tax Haven 128 4.1 North American Free Trade Agreement (NAFTA) 129 4.2 The gold card 129 4.3 Family immigration sponsorship 131 4.4 Pending retirement visa 131 10 Choosing the Best Advisors for the Job 133 1. The Four Phases of Cross-Border Planning 134 1.1 Data gathering 134 1.2 The pre-exit plan 135 1.3 The post-exit plan 135 1.4 Maintenance 136 2. The Dually Qualified Planning Professional 136 3. Dually Qualified Team Members 138 4. Chartered Public Accountants (CPAs) in Canada and Certified Public Accountants (CPAs) in the US 138 5. What to Expect from Cross-Border Financial Planners 139 6. What Does Your Cross-Border Lifestyle Dream Cost? 143 6.1 How are cross-border financial planners compensated? 143 6.2 Putting costs into perspective 146 6.3 A value proposition 147 viii A Canadian's Best Tax Haven: The US 7. Tips on Finding the Best Cross-Border Financial Planner 148 8. The Next Step to Your Enriched Cross-Border Lifestyle 149 Samples and Illustrations 1 Portfolio Net Fees Comparison 37 2 Dividend Withholding Treaty Rates versus Tax Havens 40 3 Portfolio Net Fees and Taxes Comparison 41 4 Tax on $100,000 Interest Income Comparison 70 5 $100,000 US Dividend Income Comparison 71 6 Tax on $100,000 Canadian Dividend Income Comparison 72 7 Tax on $100,000 Canadian Real Estate Capital Gains Income Comparison 73 8 Tax on $100,000 Capital Gains Income Comparison 74 9 Tax on $100,000 Pension Income Comparison 76 10 Tax on $100,000 Periodic Registered Plan Withdrawals Comparison 77 11 Tax on $100,000 Lump-Sum RRSP Income Comparison 78 12 Tax on $20,000 Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) Income Comparison 79 13 Tax on $12,000 Old Age Security (OAS) Income Comparison 80 14 Tax on $100,000 Canadian Rental Income Comparison 82 15 Tax on $100,000 Canadian Employment Income Comparison 83 16 Tax on $100,000 Canadian Royalty Income Comparison 84 17 US versus Canada After-Tax Income Comparison 97 18 Milestone Diagram 140
