Wealthy people have long been known for their jet-setting lifestyles. But more and more high-net-worth individuals – an estimated 122,000 this year compared with 51,000 in 2013, according to the London-based consulting firm Henley & Partners – have travelled not for vacations or business but rather to move to another country full time.
Canadians thinking of relocating should take their time, says Ralph Awrey, director, group business development for the Canadian operation of Stonehage Fleming, an advisor to wealthy families.
“One of the things that we try to explain to individuals when they tell us they’re thinking of leaving Canada is, there’s a level of complexity, exploration and project management that’s required,” he says. “An undertaking like this is really best viewed as a project with a number of discrete work streams, and the number, nature and scope of these work streams are really dependent on a family’s specific circumstances.
“So in the ideal world, they should be thinking about this in terms of a 24-month or longer process.”
As a first step, families should do a thorough analysis of why they want to move.
“What is it you’re trying to accomplish – are you moving for tax- or business-related reasons, lifestyle, health or all of the above?” asks Awrey. “You also need to critically examine what your lifestyle looks like now and what it could look like somewhere else. What are you going to give up in terms of the things that make you and your family happy? What are you going to gain?”
Going deeply into the what-and-why behind a desire to relocate has helped a number of Stonehage Fleming clients make a decision and build a migration plan, Awrey says. In some cases, the decision has been not to move at all.
“That will allow for more time to ensure that you’re planned and structured properly, so that when you do decide to execute you can do so without creating unintended or negative consequences.”
Mac Killoran, a tax partner at the Toronto accounting firm Fruitman Kates LLP, agrees on the importance of preparation. As an example, he cites one client who had liquidated a business for close to $300 million and wanted to set up domicile outside Canada where he could continue to build on his wealth in a more tax-efficient way.
Two years onward and this client is still working with Killoran’s firm on a plan to set up and optimize a U.S.-based tax and wealth structure. In the meantime, the client and his family continue to live in Canada.
“It’s really a matter of planning well ahead so you can avoid, or at least prepare adequately, for potentially negative tax or other financial implications,” says Killoran.
Depending on the jurisdictions, these negative implications could be triggered by rules governing passive income, double taxation and length of stay. In the United States, for example, Canadians who stay longer than 183 days are subject to U.S. tax based on the date they first entered the country, while also potentially facing a tax bill from Canada Revenue Agency.
It’s a big cost to plan for an exit – trying to model scenarios, analyzing tax and estate implications, figuring out all the risks.
Mac Killoran, partner at Fruitman Kates
Taking the time to plan is especially important for those whose long-term goal may involve multiple migrations.
“So maybe the plan is to relocate to Florida and then seven years later retire in the U.K. or Italy,” says Killoran. “You have to look at the tax implications at every stage and you have to have a long-term strategy that takes into account things like how you hold your jet, your boat, your house and how you protect yourself from a jurisdiction’s estate taxes.
Even when there’s a long-term place in place, it’s important to revisit and review periodically because a country’s tax and residency rules change constantly, he adds.
Killoran says that over the past three years, he’s helped about 15 high- and ultra-high-net-worth clients leave Canada for various jurisdictions. With the exception of two clients whose needs were addressable by a similar solution, each of these clients required a unique, bespoke strategy.
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Available cash flow was among the key factors in deciding to start the process for exiting Canada, and in choosing a solution.
“It’s a big cost to plan for an exit – trying to model scenarios, analyzing tax and estate implications, figuring out all the risks – and some people may have their cash tied up in the business or mostly invested in an RRSP,” says Killoran.
His high-level advice to wealthy Canadians looking to build their future life in another country?
“Talk to your professional advisors as soon as you’re starting to think about this,” says Killoran. “Depending on the complexity of your assets and the jurisdictions you’re looking at, the process could be easy or it could be complicated with a lot of moving parts.”
“I’ve seen this multiple times where the head of the family just decides to relocate the family to somewhere like the Bahamas or Barbados, and I’m asking: ‘Wait, have you talked to your wife about this, and are your kids okay with this?’” says Rubach. “Whether you want to relocate for financial or lifestyle reasons, you need to make sure your family’s wishes are part of your plan. Because, sure, you could be saving a buck or two, but if your kids feel like you’ve wrecked their lives, none of you will be very happy.”
With this in mind, it’s a good idea for Canadians looking to relocate to spend extended vacations in the country they hope to call their future home. This exploratory period is also a good time to sit down with an advisor to discuss the financial and estate planning implication of immigrating. In most jurisdictions, a Canadian-made financial and estate plan is likely to be contradicted in part by local laws as well as by a family’s changed circumstances.
For example, an estate plan that assigns guardianship of minor children to an aunt in Canada may need to be amended if it makes better sense for the kids to stay in their new country of residence even after their parents’ death.
“You’ll need to talk to a local lawyer to make sure the terms of your will and estate plan will be considered in your new country,” says Rubach. “In the case of our firm, because of my international background and membership in international organizations, we are able connect our clients to advisors in other countries.
“But I can’t stress enough how important it is for your entire advisory team to be working together, and now that advisory team will include advisors in another country.”
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