International Mobility // Canada-Europe 

March 2023 /

• International
• International

Dos and don’ts when moving, investing and giving

Canada, and more specifically the Province of Quebec, represents a land of immigration and professional opportunities, particularly for a growing number of French-speaking candidates.  If strong similarities exist with European standards, some precautions need to be observed when crossing the.  MTL Avocats Inc. and YOURS provide some answers to a list of questions that they are regularly asked to help their clients and find the appropriate solution together.

1.              What are the options for obtaining permanent residence in Canada? What to think about before leaving?

MTL: First of all Canada is a federal state.  As such, all rules surrounding expatriation, regardless for an individual or a corporation, are supervised by the federal government.  Of course, each province has the possibility to fine tune its immigrant policy and therefore to add certain conditions.  

If the general rules for obtaining permanent residency status are uniform coast-to-coast, each province can create additional immigration programs, or exclude some of them.  As such, the program called “Express Entry” allows to obtain in a very short period of time (less than 6 months) permanent residency status in Canada, except in Quebec.  

The French-speaking province, where the immigration rules may seem unique nationwide, has implemented its own immigration programs.  If the Investor Program in Quebec is currently suspended, the Entrepreneur Program (Stream 1) provides the possibility for the creator of innovative companies (i.e. startup) to obtain permanent residency.  The program called “self-employed” allows a self-employed person to immigrate and obtain permanent residency within a reasonable time.  For both programs, it is necessary to go through the work permit process while obtaining the permanent residency card.  

English-speaking provinces such as Ontario also propose an Entrepreneur Stream along with other programs such as the Skills Wanted Job Offer Stream or the Foreign Applicants with a PhD or Master’s Degree Stream.  The choice offered to the expatriation candidate is therefore multiple, as the needs of Canada and its provinces vary.  Given the complexity of the procedures, the assistance of a lawyer is strongly recommended. 

YOURS: Formalities and prior departure verifications are not to be omitted when leaving Europe, and several points shall be highlighted.  In addition to certain declarative aspects (with banking institutions, or with a non-resident tax office), a global review of personal and wealth situation is strongly advised.  Some financial products, with or without tax benefits (regulated savings accounts, equity trading accounts, life insurance wrappers) may no longer be suitable or compliant once the change of residence has taken place.  This may lead to a “freezing” of the contract or even to its liquidation before the actual departure, of which cost will have to be assessed.  Real estate investments will also have to be analyzed to ensure that their initial structuring will not trigger major difficulties once you are established for good in Canada.  

Also, for married couples, it will be wise to consider a potential adjustment of the matrimonial regime, to ensure (i) the recognition of the regime initially chosen in Europe and (i) the legal effects of the marriage as provided for in the Quebec civil code (especially with the concept of so called “family estate” and the protection of the spouse more generally).  The question also arises in the event of a change of residence from one province of Canada to another one.

2.             Investing in real estate in Canada: what costs and constraints? 

MTL: the question of the purchase of real estate by a non-Canadian imposes a warning: since January 1, 2023 and for a period of two years, the law on the prohibition of the purchase of residential real estate by non-Canadians prohibits for any person who is neither a Canadian citizen nor a permanent resident to acquire real estate in Canada.  As with any law, there are exceptions: temporary resident can acquire a property in Canada under certain conditions, depending on whether he /she is a student or a temporary worker. 

Not complying with such law and regulations can lead to very costly penalties because in addition to a fine of up to $ 10,000, the sale of the residential property could even be ordered. 

Assuming these purchase conditions are complied with, a few other points have to be mentioned: 

– the duration between the purchase offer and the effective ownership of the premises can be unusual for a European: from a few days in most cases to a few weeks depending on the requirements set forth by the seller or the buyer (as a reminder, 3 months in France between the signature of the purchase offer and the final deed)

– Real estate transfer taxes are much lower in Canada (maximum 3% in Quebec and maximum 2.5% in Ontario for a property over $2,000,000).  You will have to pay more than 7% of the price in France, and up-to 15% in England to acquire a property. 

– The cost of real estate may seem lower in Canada (especially in Quebec) compared to large European cities (Paris and London in particular).  For example, you can expect to pay between $1 and $1.5 million for a 160 m2 apartment or $2.5 million for a 300 m2 house located in Westmount (a very popular, upscale area of Montreal surrounded by the city’s best schools).  Expect to pay twice the price for similar properties in Paris and even more for London.  In Toronto (Ontario) and Vancouver (British Columbia) housing prices are higher, since real estate market suffers the same pressure points as in major European cities. 

3.             Canadian residents and real estate investments in Europe – how to get properly organized

YOURS: there are several points to bear in mind here: 

• real estate taxation will primarily depend on the geographic location of the property and must be dealt with in all circumstances;
  • Incentive tax regimes may exist (such as France with its countless number of tax) to soften the local tax burden, but it is critical for the non-EU taxpayer to check their overall effectiveness and which mechanisms will prevail for the elimination of double taxation in Canada when preparing his/her annual tax return.  In case of properties located in countries such as France (which also has a tax treaty with Quebec), Belgium, Morocco, Spain or the United Kingdom, the foreign tax paid abroad on the property income or gain can be offset against Canadian income tax under certain conditions. 
  • For a new project, a choice will have to be made between direct or indirect real estate ownership (real estate partnership or corporation) depending on the asset strategy adopted.  Similarly, in the case of succession planning for a foreign property, the question of a donation in full ownership or with reservation of usufruct will arise to choose the most appropriate solution so as to reconcile both the Canadian and foreign legal aspects.
  • Finally, one should not miss the wealth taxes in force in some countries (France, Spain), as non-residents are mainly taxable on their local real estate once they are above the tax threshold.  

As a result, a thorough advanced planning is paramount since any sort of reversal action involving real estate is extremely difficult.

4.             Prevention of life changing events – which protection tools available?

YOURS: this subject is of particular importance, and we know that our clients (especially entrepreneurs) do not always realize the practical issue(s) of not being equipped until we raised awareness.  In general, we only focus on insurance wrappers (accident/life/death), not sufficient to embrace protection needs in case of a serious life event altering capabilities including decision-making for an individual.  

In France and Belgium (and soon in Luxembourg), the legislator has created specific mandates called ‘mandat de protection future’ providing the possibility to organize, in case of temporary or permanent incapacity, living conditions as well as a set of rules governing asset protection and preservation.  

By appointing one or more persons as a proxy(ies), one can set in advance decision-making process for (i) his future living conditions (medical treatment, hospitalization, end of life) and (ii) the management of his wealth (preservation, disposal, reinvestment, and even donations under strict rules).  

These PoAs have the benefit to regulate the management of difficult decisions concerning the person’s state of health, but also avoid disfunctions about the financial needs of a family or operating business (e.g. blocking of bank accounts, board of companies). 

There is a similar system in Canada (mandate for protection or incapacity).  In the context of a relocation to Canada it is advisable to assess the need of a local protection mandate or pairing with other foreign mandate, depending on the personal situation encountered (e.g. due to the location of some assets).

5.             Wealth transfer to next generation – when and how to consider it 

Here there is a real difference between Canada and Europe in general.  Generally speaking, in Europe, transfers for no consideration (i.e. donations, devolutions and legacies) are subject to registration duties.  Specific exemptions or allowances may apply depending on the nature of the property (family home, company shares) or the degree of relationship with the deceased or donor.  If you are a Canadian resident, these taxes will mainly apply to assets located in Europe.

In Canada, we are always surprised at first sight by the fact that there is no similar tax on gifts and inheritances. Nonetheless, there is a tax that applies to inheritance because this latter is treated as a taxpayer, particularly for capital gains tax purposes.  Since international donation or succession may be affected by two different tax categories, double (or even triple) taxation could arise. 

Fortunately, Canada’s income tax treaties define estates/legacies as a resident to benefit from the elimination of double taxation.  Given their close ties with Canada, the tax treaty between Canada and the United States and the one concluded with France provide for specific arrangements in this respect.  

Finally, certain trust structures in Canada providing local tax efficient succession planning results, may not be that efficient in Europe: this should lead to careful analysis (in particular with France and Belgium).