Settling in Canada:

The Right Reflexes for Departure, Investment, Transmission

Canada, particularly the Province of Quebec, represents a land of immigration and professional opportunities, especially for an increasing number of French-speaking candidates. While at first glance there are strong similarities with our European standards, crossing the Atlantic requires a set of precautions before taking the plunge. MTL Lawyers Inc. and YOURS outline here a range of topics that are regularly posed to them to enable their clients to find the right solution together.

1. What are the possibilities for obtaining permanent residence in Canada? What to consider before leaving?

MTL: Let's remember that Canada is a federal state. As such, all rules surrounding expatriation, whether for individuals or corporations, fall under federal jurisdiction. Of course, each province has the ability to choose its immigrants and therefore impose certain conditions. While the general rules for obtaining permanent residence are uniform across the country, each province can create additional immigration programs or exclude them. For instance, the "Express Entry" program allows for obtaining permanent residence in a particularly short period (less than 6 months), except in Quebec. The francophone province, where immigration rules may seem unique within the country, has nevertheless established its immigration programs. Although the investor program in Quebec is suspended as of the date this article is written, the entrepreneur program (stream 1) offers the opportunity for creators of innovative businesses (i.e., startups) to obtain permanent residence. The "self-employed" program, as its name indicates, allows a self-employed worker to immigrate and obtain permanent residence within a reasonable timeframe. For both programs, however, it is necessary to go through the work permit stage while waiting to obtain the permanent residence card.

Anglophone provinces like Ontario also offer an entrepreneur stream alongside other programs such as the In-Demand Skills Job Offer stream or the Foreign Worker with a Doctorate 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, guidance from a lawyer is highly recommended.

YOURS: Preliminary formalities and checks should not be overlooked when leaving Europe, and several points should be kept in mind. Besides certain declarative aspects (with banks, the non-resident tax center), a comprehensive review of one's situation is strongly advised. Regarding financial assets, some products or tax-advantaged envelopes (regulated savings accounts, PEA, life insurance) may no longer be suitable or compliant once the residency change is made. This could lead to a "freeze" of the contract or even its liquidation before the actual departure, and the cost will need to be evaluated. Real estate investments should also be analyzed to ensure their initial structuring will not pose a major difficulty once permanently established in Canada.

Also, for married couples, it would be wise to consider a possible adjustment of the matrimonial regime, especially regarding the recognition of the chosen regime at the time of marriage in Europe and the effects of marriage as provided in the Quebec Civil Code (we are thinking in particular of the unique concept of family patrimony and the protection of the spouse more generally). The question also arises in the case of moving from one province to another.

2. Investing in Real Estate in Canada: What Costs and Constraints?

MTL: The question of real estate purchase by a non-Canadian immediately warrants a caution: since January 1, 2023, and for two years, the Act Prohibiting the Purchase of Residential Properties by Non-Canadians makes it impossible for anyone who is neither a Canadian citizen nor a permanent resident to acquire residential property in Canada. As with any law, exceptions exist. A temporary resident can acquire real estate in Canada under certain conditions if they are a student or a temporary worker.

Beware, non-compliance with the law and its regulations carries heavy penalties, including a fine of up to $10,000, and the residential property could be ordered to be sold.

Update: On March 27, 2023, changes were made to the regulation. A relaxation has been decided, allowing holders of a work permit for more than 183 days to acquire real estate.

If the legal framework is respected, a few elements deserve mention:

The timeframe between the purchase offer and taking possession can be surprising for a European: a few days in most cases to a few weeks depending on the seller's or buyer's requirements (for reference, 3 months in France between the signing of the preliminary sale agreement and the final deed).

Transfer taxes are significantly lower in Canada (maximum 3% in Quebec and maximum 2.5% in Ontario for properties over $2,000,000). Acquiring property will require paying more than 7% of the price in France, and up to 15% or even 17% in England.

The cost of real estate may seem lower in Canada (especially in Quebec) compared to certain major European cities (notably Paris and London). Thus, expect to spend between 1 and 1.5 M $ (between 690,000 EUR and 1,035,000 EUR) for a 160 m2 apartment or 2.5 M $ (1,725,000 EUR) for a 300 m2 house located in Westmount (a chic and highly sought-after neighborhood in Montreal surrounded by the best schools in the city). Count at least double for similar properties in Paris, triple for London. In Toronto (Ontario) and Vancouver (British Columbia), prices are higher, with real estate facing the same pressures as in major European metropolises.

3. Canadian Residents and Real Estate Investments in Europe – How to Organize

YOURS : There are several points to keep in mind in this situation:

– Real estate taxation broadly depends first on the geographical location of the property and is an inevitable factor to be dealt with under all circumstances.

– Although advantageous tax regimes may exist (particularly thinking of France and its multitude of tax niches in this area) to soften local taxation, it will be especially important to verify their application as a non-EU resident and the mechanisms for eliminating double taxation with Canada when filing the annual tax return on worldwide income. For properties located in countries like France (which also concluded a tax treaty with Quebec), Belgium, Morocco, Spain, or the United Kingdom, the tax paid abroad on rental income or sales can be credited against Canadian tax, under certain conditions (be aware of the inclusion of these incomes or gains in the calculation of Canadian tax progressivity, for example with Belgium and the United Kingdom).

– For a new project, a choice will need to be made between direct or indirect real estate ownership (such as through an SCI or a capital company) depending on the adopted strategy (asset management or other). Similarly, in the case of estate planning for a foreign real estate asset, the question of a full ownership gift or a gift with the reservation of usufruct will arise to retain the most relevant solution and reconcile Canadian and foreign civil and tax aspects.

– Finally, wealth taxes in force in certain countries (France, Spain) should not be overlooked because non-residents are mainly liable for this tax on their real estate assets located there once the taxation threshold is crossed.

Considering all these points, prior organization is therefore essential as any backtrack on real estate asset holding is naturally extremely delicate.

4. Accident Prevention – What Protection Tools?

YOURS/MTL : This topic holds particular importance that, in our view, is still too little explored by our clients (especially entrepreneurs) before we raise their awareness. The focus is often on various insurance coverages (accident/life/death), but these only cover a narrow (financial) spectrum of protection needs in the event of a more or less serious incident.

It's important to note that in France, Belgium (and soon Luxembourg), legislators have allowed the creation of specific mandates known as future protection mandates that offer the possibility to organize one's living conditions in the event of temporary or permanent incapacity, as well as the modalities for protecting one's assets. Thus, it's possible to specify, by appointing one or more persons as agents, the modalities for:

– Future living conditions (medical treatment, hospitalization, end of life); and

The management of one's assets (preservation, administration, sale, reinvestment, and even donations under strict control).

These mandates allow for difficult decisions regarding a person's health state to be framed but also prevent financial operational blockages of a family unit or a company (blocking of bank accounts, administration of companies). A similar mechanism exists in Canada (known as a protection or incapacity mandate). It will be necessary to consider whether to redo a protection mandate in Canada or to juxtapose it with a pre-existing mandate depending on encountered situations (for example, based on the location of the concerned assets).

5. Wealth Transfer – When and How to Consider It

YOURS: There is a real difference between Canada and Europe in general. In Europe, gratuitous transfers (donations, devolutions, and testamentary bequests) are subject to fixed or proportional registration fees. Exemptions or specific deductions may apply depending on the nature of the asset (family home, business shares) or the degree of kinship with the deceased or donor. If you are a Canadian resident, these rights will primarily apply to assets located in Europe.

In Canada, we are initially pleasantly surprised by the fact that there are no similar rights on donations and successions. However, there indeed exists a tax that applies to the estate as it is treated as a separate tax subject, especially regarding capital gains tax. Dealing with two different types of taxes, double (or even triple) taxation situations could therefore arise if nothing was anticipated in the context of an international donation or succession.

Fortunately, the tax treaties on income concluded by Canada have provided for treating estates as a residents of Canada to benefit from the elimination of double taxation. The tax treaty between Canada and the United States and the one concluded with France provide quite specific arrangements given the close ties they have with Canada. Finally, while certain trust structures (or fiducie) in Canada allow for efficiently encapsulating the wealth to be transmitted, such mechanisms are not without difficulty to manage from a tax perspective from certain European countries (notably France and Belgium)