The world is getting smaller. Not only do the internet and electronic forms of communication make it easier to relate to people all across the globe, safe and convenient travel has made it possible for more people to visit new countries and even invest in those countries. As a result, more people own property beyond the borders of their homes.
While this is an exciting and advantageous era in which to be living, it does add complications to one's estate planning efforts. You may be one for whom estate planning is a way to protect your assets and your loved ones from tax ramifications. Therefore, you may benefit from understanding some of the factors that may frustrate your efforts to avoid tax penalties after your death.
Cross-border taxes and treaties
It is no longer enough to establish an estate plan based on the Canadian tax laws alone. Unlike some other countries that levy a tax on the heirs of an estate, Canada imposes an income tax on you after your death. In other words, once you pass away, the government supposes you have sold all your belongings, and your estate will be taxed based on the capital gains of the appreciated value of any assets in your estate.
However, if your interests lie in other countries, your estate may also be subject to those tax laws. Aside from the U.S. and France with whom Canada has tax treaties, other countries have the right to add their taxes to the Canadian income tax, effectively taxing your estate twice. Here are some circumstances that may be vulnerable to such a double taxation:
- You live in Ontario or another Canadian province, but you own assets in another country.
- You live and own assets in Canada, but your heirs live in another country.
- You live in another country, but you own property in Canada.
- You are living in Canada, but you are a citizen of the United States.
The assets in question may include real property, a second home, a business or other interests, and the relevant countries may tax your estate for a variety of reasons.
As you plan your estate, it will be helpful to have a good understanding of the laws that affect any international assets you may hold. With the right legal assistance, you may find ways to protect your assets from some of these taxes and identify which taxes may not apply to your estate.