Not long ago, conventional asset protection, income tax avoidance mantra suggested taking a revenue-producing asset (such as Patents or Trade-marks that can be licensed) off-shore to a low or nil income tax jurisdiction. The idea was to earn royalties in a favourable tax jurisdiction and avoid U.S. or Canadian income tax on the income. The off-shore vehicle could be a Family Trust, the sole asset of which is a foreign jurisdiction wholly-owned subsidiary corporation that owns the Patents/Trade-marks or intellectual property and pays (as would any foreign trust or corporation) no or little taxes in its foreign jurisdiction. Favoured jurisdictions were, among others, the Bahamas and Barbados, primarily because of political stability and proximity. However, to plug that “hole” of lost taxes to Canada Revenue Agency on income essentially earned by Canadian citizens or residents, CRA introduced the concept of a “Foreign Accrual Property Income” or “FAPI”. Essentially, the rules attribute to the beneficiaries of the foreign trust or the shareholders of the foreign corporation imputed sharing of the income earned by those foreign Trusts or corporations. And that whether the Canadians receive the spoils or not. The caution point is this: Before embarking on any effort to avoid Canadian taxes by any structure that could result in the application of FAPI, be sure to get detailed legal and accounting advice. The surprise, years later, can be a healthy tax bill with applicable penalties and interest. Be cautioned and be aware.
Peter’s Blog
Often the use of a Corporate Lawyer comes about as a result of challenges in business situations. Peter’s blog has been created to demonstrate the range of business situations that require the introduction of a corporate lawyer early in the process to prevent the often complex problems businesses find themselves in. Short succinct examples on asset protection, estate planning, succession planning and a variety of other matters will be addressed interspersed with some fun tongue and cheek responses to the media on issues of corporate law. Enjoy!