The top 20% of income earners in Canada pays 56% of the country’s taxes. The top 1% of income earners in Canada pays nearly 18% of the federal and provincial income taxes, while the bottom 50% will pay less than 9%. These are examples of Pareto’s principle.
The current administration in Canada views wealth as a zero-sum game. Canada’s use of extensive regulation leads to asymmetry for the top earners. We enjoy a finite upside to healthcare, safety, and quality of life, but an infinite downside of taxes and escalating run-ins with the CRA. Top earners use less public resources but pay disproportionately more for everything.
Countries that surpass Canada on the Economic Freedom of the World Index (Switzerland, Singapore, and Hong Kong) all view wealth as positive-sum (benefiting everyone) and accordingly, have 0 capital gains tax and overall low taxes.
But the fact is, more Canadian money is invested in Barbados than in Switzerland, Singapore and Hong Kong combined. Barbados is the 3rd biggest destination of Canadian direct investment abroad. After which is Luxembourg and Cayman Islands (requires a $600K investment into Cayman Islands real estate), while Bermuda follows quickly. These tax havens with Canadian money are used by large Canadian umbrellas the 0.01% earners and have strict requirements:
- You need to stay less than 183 days in Canada to become a non-resident in Canada for tax purposes while taking up residency in Barbados. The increasingly risky alternative is creating a facade by paying Barbadians to be your board of directors.
- No employees in Canada.
- Your Barbados company must be registered as an IBC ($2,500 CAD one-time fee with $3,800 CAD annual fees) and can sell goods worldwide EXCEPT in Canada and Barbados.
- You must have an audit done annually by an audit firm ($7,000 CAD/year)
One catch as of June 20, 2018 – Barbados is currently not allowed to sell on Amazon so you’ll need residency in another country (but not Canada).
Until an expensive offshore tax-haven is feasible, everyone should:
- Focus on building a scalable business.
- ONLY once you have #1. Then buy a home no more than 4x your gross annual household income, with no less than 30% down. If you don’t have 30%, either continue to rent or buy a home 2.5x your gross annual household income with 20% down. Once you are ready to retire offshore, take advantage of Canada’s capital gains exemption on principal residences.
- Until then, continue to collect $3+ million in cash
Why $3+ million?
- You’ll have $500K entrusted to each kid invested until they have followed your entrusted plan and presented their business idea to the board around age 25-28.
- You’ll have $500K+ for high-risk investments that could give 10x return, but not affect your life if lost
- You’ll have more than enough money not to have to work for the rest of your life not even accounting for $90K in interest $3million could pay you each year at a conservative 3%.
What about the taxes?
You can optimize your 2 biggest expenses: taxes and housing by balancing your draws from your corporation:
If you make the minimum payments towards your mortgage your home will cost you a lot more than it should. The more aggressively you pay off your mortgage the more taxes you pay since your draws from your corporation determine your personal income taxes.