# Departure Tax: CCPC w/ Retained Earnings



## departure (Jan 11, 2018)

Hello,

I am relatively young entrepreneur, looking to move to a low tax jurisdiction. In doing so, I want to minimize the upfront departure tax.

Assumptions:

- $2MM+ retained earnings across 100% owned CCPC's
- PUC and ACB of CCPC's is negligible
- Married with a premarital agreement (wife doesn't own shares of CCPC's)
- Preference to return to Canada for retirement (not mandatory)
- Primary residence worth ~$600K
- Can operate online businesses from anywhere

From my initial readings, it seems my options are:

1. Pay a dividend for the retained earnings

This works out to about ~$850K on $2MM (43.47% tax rate). Then, I can opt for a "deferment" by posting equivalent assets in security

2. Utilize LCGE with a deemed disposition

To do this, I would make my wife a shareholder in the CCPC's, allowing a LCGE of ~$1.5MM (might require review of our premarital agreement). 

I would then have to pay capital gains on the $500K excess ($2MM retained earnings less $1.5MM LCGE), for a departure tax of ~$100K. 

I would also be subject to a withholding tax of 25% when I pay myself a dividend from the CCPC's after leaving Canada. I imagine I can't pay myself a salary from a now inactive CCPC, so a dividend would be the only option.

On the remaining $1.9MM, this would be a withholding tax of $475K if I pay myself the full dividend and never return to Canada. The total works out to about $575K.

It is still theoretically cheaper than Option #1, although less so if I consider giving up $365k of tax savings by using the LCGE. Since my wife and I don't invest much personally, I imagine this is a moot point.

The other option would be to pay the $100K on the deemed disposition, and not pay myself a dividend while abroad. Once I return to Canada, I can spread my dividends out over several years (let's say $100K annually), rather than a lump sum that puts me in the highest bracket. This does "force" me to return to Canada eventually.

--

Of course, I will be consulting with a professional accounting firm. However, in the past I have found that some accountants overlook possible options that my own research has found. As such, I would like to go into the meetings with a general strategy, and then see if an accountant can suggest something better.

Thank you!


----------



## redsgomarching (Mar 6, 2016)

seems like a brag thread. go speak to an accountant. this **** aint for an online forum and quite frankly any advice is worth $$$. 

secondly, if you have accumulated this you probably would already have an accountant. talk to them.


----------



## OnlyMyOpinion (Sep 1, 2013)

redsgomarching said:


> seems like a brag thread...


Perhaps, but my impression was that the OP had spent the time to provide details so the discussion here would be relevant. 
I do agree with your suggestion that they talk to a knowledgeable accountant. They indicated that they are planning do do that.


----------



## redsgomarching (Mar 6, 2016)

OnlyMyOpinion said:


> Perhaps, but my impression was that the OP had spent the time to provide details so the discussion here would be relevant.
> I do agree with your suggestion that they talk to a knowledgeable accountant. They indicated that they are planning do do that.


if he has already thought about this in this depth he should be consulting with his accountant. i have no doubt that any CCPC with 2 mill in RE would already have an accountant.


----------



## heyjude (May 16, 2009)

redsgomarching said:


> seems like a brag thread. go speak to an accountant. this **** aint for an online forum and quite frankly any advice is worth $$$.
> 
> secondly, if you have accumulated this you probably would already have an accountant. talk to them.


With all due respect, this is neither bragging nor ****. As a corporate owner myself, I find that, while my accountant and other professionals are very knowledgeable, their advice is best placed in the context of a well-informed, proactive approach. Preparation helps. I respect the OP’s question, and while I don’t have any illuminating answers to offer, I will be very interested in the discussion, as I may be in a similar position at some point in the future.


----------



## tdiddy (Jan 7, 2015)

Agree that this is a very legitimate question and you get far more from an accountant when you have some background yourself. I'm not in a position to offer even informal advice myself, hopefully someone else is, but its a pretty major decision so I would suggest getting a few opinions. Keep in mind that whomever is assisting you with this will likely bill you a lot more for option 2 than option 1 so have to factor that into consideration when taking their opinion, I'd ask whomever you go with to run the numbers for you long term so you can understand the math yourself.


----------



## Lost in Space 2 (Jun 28, 2016)

departure said:


> Hello,
> Of course, I will be consulting with a professional accounting firm. However, in the past I have found that some accountants overlook possible options that my own research has found. As such, I would like to go into the meetings with a general strategy, and then see if an accountant can suggest something better.
> Thank you!


I've found the same thing, if you can put up with the cattiness of fourms they can be a huge resource. Anyways your situation is probably too unique to be able to find an answer here, although it wouldn't hurt to do some digging here. There’s a Canadian tax expert over at the MMM forums but you'll need to dig to find it. Popular forum but terrible setup. *One point, nothing worse than people signing up asking for free advice and then disappearing never to return. So please update as you get information/* 

That aside I don't really blame you for wanting to move. I’ll always be Canadian at heart but will never move back. 
The chatting classes have been discussing how Canada has avoided the populism that has been sweeping the western world. The thing is Canada has its own unique form of populism. Rather than a Trump style war on immigration both Wynn and Trudeau have been elected on a “war on the rich” platform. Which we all know means a war on baby boomers and people like yourself.


----------



## Koogie (Dec 15, 2014)

Lost in Space 2 said:


> That aside I don't really blame you for wanting to move. I’ll always be Canadian at heart but will never move back.
> The chatting classes have been discussing how Canada has avoided the populism that has been sweeping the western world. The thing is Canada has its own unique form of populism. Rather than a Trump style war on immigration both Wynn and Trudeau have been elected on a “war on the rich” platform. Which we all know means a war on baby boomers and people like yourself.


Don't blame you. 

Much like the OP, there are other CCPC owners with large retained earnings (such as myself) who are also contemplating this question. I haven't gotten past the idle speculation point as yet though.


----------



## OhGreatGuru (May 24, 2009)

I wouldn't call it a brag post without further evidence. But it astonishes me how people with net worth approaching $3M are asking for free financial advice on an Internet forum instead of paying a professional - but maybe that's how they got to be rich.


----------



## Eclectic12 (Oct 20, 2010)

The OP is up front that the "pros" have been spotty at times so that other sources are being checked before meeting with the pros. I don't this as bragging or an astonishing attempt to bypass paying the "pros".


Not being in this group or having the time to run calculations ... I leave to others.


Cheers


----------



## heyjude (May 16, 2009)

Since nobody seems to be providing useful information, I did a quick Google search on CCPCs and cane up with this:

https://www.taxtips.ca/glossary/ccpc.htm

......which makes it clear that a CCPC must be controlled by a resident of Canada. Therefore, if you leave the country, either someone else must control it, or it must be dissolved. Obviously, that would lead to a big tax grab. 

This is one reason why I plan to maintain Canadian residency, as I have a lot of assets tied up in my CCPC.


----------



## departure (Jan 11, 2018)

Lost in Space 2 said:


> *One point, nothing worse than people signing up asking for free advice and then disappearing never to return. So please update as you get information/*


Actually, I do have updates - but noticed my prior post went into moderation and never approved. I think that might explain why new users on this board stop updating. The posts get pushed into moderation, and no one gets around to approving them.

Let's see if this posts before I take the time to write more.


----------



## tdiddy (Jan 7, 2015)

OhGreatGuru said:


> I wouldn't call it a brag post without further evidence. But it astonishes me how people with net worth approaching $3M are asking for free financial advice on an Internet forum instead of paying a professional - but maybe that's how they got to be rich.


I think it is wise to get as much information as possible for _major _financial decisions. People with 1-5 million dollars may be able to get better advice than those < 1 million for a similar portion of their net worth but its not like they are dealing with world class financial/tax minds. If you go to the next level of advice (say a high profile tax lawyer) you are looking at rates of about $800/hr so it certainly pays to have a good deal of background info yourself. None of the professionals have the same vested interest in your personal situation as you do. I've gotten really bad advice from a lawyer before, I considered it closely, felt something was off discussed it with family, and then got a second legal opinion which was vastly different.


----------



## heyjude (May 16, 2009)

tdiddy said:


> I think it is wise to get as much information as possible for _major _financial decisions. People with 1-5 million dollars may be able to get better advice than those < 1 million for a similar portion of their net worth but its not like they are dealing with world class financial minds. None of the professionals have the same vested interest in your personal situation as you do. I've gotten really bad advice from a lawyer before, I considered it closely, felt something was off discussed it with family, and then got a second legal opinion which was vastly different.


I’ve learnt a lot by reading and participating in forum discussions, here and elsewhere. Consequently, I sometimes catch out advisers on their errors. For example, my accountant once told me I could claim a pension credit by starting a RRIF. I already knew I would not be eligible to do this till age 65. And then there was the time I came into an inheritance and was researching financial firms. I asked what the Sharpe ratio of a particular fund was, only to discover that two experienced FAs who were trying to sell it to me had no idea what it was!


----------

