# Best countries with low capital gains taxes



## snowbeavers (Mar 19, 2013)

I am a Canadian expat and considered a non-resident for tax purposes and have lived overseas most of my adult life. My wife is American and we hold retirement accounts offshore in my name. We are looking ahead (still probably 15 years from retiring) and realize that if we move back to Canada, we would have to pay capital gains taxes on our retirement savings. I assume that the capital gains would only start the day we move back to Canada (not retroactively). Luckily, the US IRS can't tax us as the accounts are in my name. Thus, we need to look at which countries we could live in and not pay significant capital gains taxes. We found that Monaco, Bahamas and New Zealand as possible options. Any others people would recommend or other advice in general?


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## OhGreatGuru (May 24, 2009)

1. Develop a filter for immigration requirements to help you narrow down the possibilities. Most countries aren't looking for middle-aged workers unless they are in high-demand professions for which they have a shortage; nor retirees unless they have high incomes and capital to invest in the country.

2. Check out the tax regimes carefully. For example, New Zealand may not have capital gains tax, but it has 15% value-added-tax. Some countries tax your net worth annually, not just annual income.

PS. And if you go to a second/third world country you will have to pay privately for things that are covered by your taxes elsewhere - like health care; adequate policing; a fair justice system; an honest tax system; etc. But then if you have been living abroad a long time you likely know this already. I mention this mostly because your concern about capital gains taxes seems out of proportion to all the other considerations in trying to decide where to retire abroad.


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## Eclectic12 (Oct 20, 2010)

snowbeavers said:


> ... We are looking ahead (still probably 15 years from retiring) and realize that if we move back to Canada, we would have to pay capital gains taxes on our retirement savings. I assume that the capital gains would only start the day we move back to Canada (not retroactively).


Assuming the account is taxable (i.e. capital gains, dividends, interest etc.), my understanding is that the cost base is set at fair market value the day one becomes a Canadian tax resident again. So where one bought for $10, the investment was trading for $22 the day one became a Canadian tax resident. Capital gains usually isn't taxed until the sale so there is nothing to pay. Say one sells five years later for $27 .... then the capital gain one pays tax one is $27 - $22 = $5. (I am leaving some details out.)

However, you say this is a retirement account so the question is what that means in the current country of tax residency then what that means for when the Canadian tax residency is established. I am not an expert but I seem to recall articles by people receiving $$ from a foreign retirement account where the source country takes a % of the payment then Canada treats the $$ paid as taxable income where a tax treaty gives a tax credit to reduce/eliminate the double taxation. 

The key point here is that neither the source country nor Canada are treating the $$ paid as a capital gain, even if the $$ came from a capital gain.


If you are correct that there is capital gains only ... then all is good. If not, you may be in for a surprise despite your best efforts to plan ahead.


Cheers


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## AltaRed (Jun 8, 2009)

The OP doesn't say in which country he resides, nor what kind of retirement accounts, nor whether a tax treaty between Canada and his country of residence might recognize retirement accounts in his current host country. It may be that it is possible to facilitate a transfer of those funds to a Canadian retirement account, or for the OP to keep existing retirement accounts in his host country and have Canada recognize protection of income growth in them until it is time to withdraw.

As a minimum, if the OP was to cash out his retirement accounts in his host country before entering Canada, I agree with Eclectic that Canada would only start the clock ticking on cap gains on the date of entry to Canada. Canada might even, via tax treaty, provide a foreign tax credit for tax paid to dissolve the retirement accounts in his host country. There is much the OP has not disclosed about his situation.


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## snowbeavers (Mar 19, 2013)

AltaRed said:


> The OP doesn't say in which country he resides, nor what kind of retirement accounts, nor whether a tax treaty between Canada and his country of residence might recognize retirement accounts in his current host country. It may be that it is possible to facilitate a transfer of those funds to a Canadian retirement account, or for the OP to keep existing retirement accounts in his host country and have Canada recognize protection of income growth in them until it is time to withdraw.
> 
> As a minimum, if the OP was to cash out his retirement accounts in his host country before entering Canada, I agree with Eclectic that Canada would only start the clock ticking on cap gains on the date of entry to Canada. Canada might even, via tax treaty, provide a foreign tax credit for tax paid to dissolve the retirement accounts in his host country. There is much the OP has not disclosed about his situation.


Sorry for not providing more details but didn't want to disclose too much personal information. The retirement accounts are based offshore in a brokerage account in Singapore (multinational brokerage company). We hold a number of Canadian and US ETFs (bonds and stocks). None are registered through any Canadian RRSP, etc. Our current host country does not tax capital gains held outside the country but we pay income tax on our salaries here. However, we tend to move every 5 years or so to other countries around the world. We typically buy and hold all our investments so any capital gains are unrealized at this point.


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## gardner (Feb 13, 2014)

snowbeavers said:


> Canadian and US ETFs (bonds and stocks).


There is probably a 1.5% to 3% interest and/or dividend yield on these also. You will want to consider the tax treatment of that also, in your calculations as it will likely form 30% or more of the overall earnings, and generally it occurs and is taxed continuously. In Canada, interest from bonds is generally very tax-inefficient and this is likely true in most places that tax interest.


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## Eclectic12 (Oct 20, 2010)

So when you say "retirement account", if I am reading correctly - there is not tax deferral or similar. 
It is essentially a taxable account that is earmarked for retirement, right?


Cheers


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## AltaRed (Jun 8, 2009)

I suspect the OP is using the term 'retirement accounts' in a generic sense, i.e. actually straight up brokerage cash accounts, rather than any type of registered 'tax deferred' sovereign accounts the way we understand them, simply because there would be no 'resident' mechanism to shelter income in Singapore. There is not much we can advise about simply because with the OP moving countries every 5 years or so, we don't know what his tax obligations might have been while being a tax resident in any one of those countries he resided in at the time. I find it (almost) non-credible that none of the unrealized capital gains on those investments have been taxed to this point somewhere.... because tax laws in some countries likely don't care if the investments were sold or not... it is simply the difference between the value of the investments on the date of entry to that country and the value of the investments on the date of departure from that country. Countries can tax on unrealized gains simply because they would be "deemed" to be disposed of when leaving the country for tax purposes. I think that is the way it is in Canada.

Example: A comes to Canada on Day X with worldwide investments valued at $500k CAD equivalent market price. After a stint in Canada, A leaves Canada, not having sold any of those investments, but those investments have now gone up in value such that the value on departure date Day Y is now $700k CAD equivalent. AKAIK, there is a deemed taxable gain of $200k on which cap gains tax is due.

However, that is a different issue that tax accountants can deal with. From the OP's original question, I agree that the adjusted cost base of these worldwide investments will be the market prices in CAD equivalent of those investments on the date of entry to Canada. Cap gains will only accrue from a Canadian tax perspective from that day forward.


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## twa2w (Mar 5, 2016)

snowbeavers said:


> I am a Canadian expat and considered a non-resident for tax purposes and have lived overseas most of my adult life. My wife is American and we hold retirement accounts offshore in my name. We are looking ahead (still probably 15 years from retiring) and realize that if we move back to Canada, we would have to pay capital gains taxes on our retirement savings.....


A lot can change in 15 years. I can't comment on other countries but in regards to Canada, if that is still a consideration, there used to be an immigration trust to shelter taxes for immigrants over the first 5 years. This is gone but a properly structured trust could still work to shelter income. There are lots of rules around these and you should check with a lawyer familiar with off shore trusts to ensure this would work.
At a minimum the trust would have to be held offshore, with an offshore trustee. It would have to be irrevocable and non descretionary. It would not really make sense unless you have children ( or close relatives) who would be capital beneficiaries and who are preferably non Canadian or USA residents.
If structured properly you could pay minimal tax but would have little descretion over the trust.

Also note that capital gains and dividends in Canada still get favourable tax treatment versus interest or employment income so you may pay far less tax than you think.
In regards to retirement, I think you have to look at more than income taxes. Ie cost of living in some countries can eat up the difference in taxes pretty quickly, amenities and lifestyle, medical, proximity to and/or cost of transportation to visit family? Some countries have pretty strict immigration rules unless you are in certain occupations and ages( ie New Zealand)Etc etc as I am sure you are aware but that is a whole other discussion.

Good luck.


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## snowbeavers (Mar 19, 2013)

gardner said:


> There is probably a 1.5% to 3% interest and/or dividend yield on these also. You will want to consider the tax treatment of that also, in your calculations as it will likely form 30% or more of the overall earnings, and generally it occurs and is taxed continuously. In Canada, interest from bonds is generally very tax-inefficient and this is likely true in most places that tax interest.


Yes I pay taxes on all dividend yields automatically through the brokerage.


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## snowbeavers (Mar 19, 2013)

Yes, you are correct. It is not registered or tax deferred. Not sure about taxing on unrealized gains though. Currently, this is not the case in the country I am residing in.


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## snowbeavers (Mar 19, 2013)

Thanks for the advice. If indeed I do repatriate to Canada, I will consult a lawyer about this. It is very complicated in my case since we do have children who are both Canadian and American citizens.


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## Eclectic12 (Oct 20, 2010)

snowbeavers said:


> ... It is not registered or tax deferred. Not sure about taxing on unrealized gains though. Currently, this is not the case in the country I am residing in.


Thanks for the clarification.

Since you mention unrealised capital gains - I am thinking you are focused on the capital gains from selling the shares/ETF units as the only source of capital gains. Have you checked whether your ETFs paid cash that was classed as a capital gain? 

Maybe the applicable tax countries treat cash differently but should you become a Canadian tax resident again with a taxable account, cash paid from the ETF that is identified as a capital gain will be taxed in the year it is paid. It does not change that when selling the units, there will also be a capital gain.
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm




snowbeavers said:


> Thanks for the advice. If indeed I do repatriate to Canada, I will consult a lawyer about this. It is very complicated in my case since we do have children who are both Canadian and American citizens.


Maybe I am missing something but my co-workers in a similar situation identify the being an American citizen that has to file a US tax return on world wide income as well as potentially report foreign assests (FATCA) as the complicating factor.

The current country of tax residence also adds a flavour to it as well as any tax treaty benefits. From what they have said - the US piece is always at play until one revokes one's US citizenship, no matter where one is in the world.


I'm not an expert and not a US citizen so it is less complicated for me.

Cheers


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