All About Estates

Breaking Up is Still Hard to Do?

This blog has been written by Rahul Sharma, Partner, Fasken Martineau DuMoulin LLP, Toronto

Nearly a year ago, I made a post on this blog entitled “Breaking Up is Hard to Do – Ceasing to be a Canadian Tax Resident may be Easier Said than Done” (Breaking Up is Hard to Do – Ceasing to be a Canadian Tax Resident may be Easier Said than Done – All About Estates).  Since then, I have lost count of the number of individuals who have contacted me regarding their intention to leave Canada.  These sorts of inquiries existed when I first started practicing.  The main difference between then and now is that, previously, many people looking to leave Canada were simply kicking tires (particularly after returning from a vacation in the Caribbean); they were not entirely serious in their intention.  The resolve with which individuals are now looking to depart is noteworthy.

For many, last month’s Federal Budget only strengthens this resolve to leave.

The press has not failed to take notice.  I have been impressed by the number of articles and editorials that have been published in leading newspapers.  In fact, they are far too numerous to be reproduced or quoted here.  But some themes stand out: the logic of increasing the capital gains inclusion rate at a time when the nation is facing a productivity crisis, the blunt impact on entrepreneurship in the country, and the heightened motivation for capital—and individuals—to depart.

My first call from a client on April 16th was around 4:15 p.m.  The reaction to call an advisor seemed knee-jerk for this individual.  “What do I do—should I leave Canada?”  After digesting the Budget proposals a little more, the timeline to trigger gains (which the Canada Revenue Agency has now confirmed will not give rise to consequences under the Income Tax Act (Canada)’s general anti-avoidance rule in certain circumstances) seemed quite tight.  It is a dilemma that many are facing who were considering a departure in the near future.

But breaking up is still hard to do.  For many existing business owners, in particular, the implications of non-residency, including now in the face of a higher capital gains inclusion rate, are simply not feasible.  Then again, that does not stop these business owners from looking to the next generation.

One successful business owner recently noted that she felt that there was no point for her children to repeat what she did in Canada—that is, build a successful enterprise that provided employment to scores of people and that otherwise meaningfully contributed to the economy and to our wellbeing.  That is a truly sad statement and one that is not unique to the individual in question.  Time will tell how deeply the Budget, and increases to tax rates, shifts individuals’ mindsets.  But for that business owner, it seemed clear that her children would face a much better future in the United States or elsewhere globally if they were looking to be successful in the startup space, as was she.  This underscores an interesting shift that I am seeing in clients: the number of successful, high and ultra-high net-worth parents who are encouraging their children to leave the country, even if they end up staying behind.

For those whose resolve to leave has been strengthened by the Budget proposals, proper planning remains as essential as ever.  The need to properly sever ties to the country and to establish oneself in another jurisdiction has not changed.  Professional assistance is required, as explained in my earlier blog post.

Likewise, for parents with children looking to leave Canada and establish themselves in other jurisdictions (or who have already left Canada to do so), proper cross-border or international estate and succession planning (as complicated as it might be) is essential.  Working with a network of competent advisors in this space, both inside and outside of Canada, is needed for success.

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1 Comment

  1. Ian Keay

    May 10, 2024 - 3:10 pm

    Interesting article

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