The Tax Issue:
My wife and I have been expats for 12 years. We would like to know if we come back to Canada can we keep our Bahamas IBC corporation that holds all our stock and bonds and pays us a yearly income? We presently only spend about 50% of our income, which is of course tax-free.
Or if we return to Canada, do we have to close the IBC and hold our investments personally,(or even keep the IBC) and still declare and pay taxes on all our annual income?
Well, it’s good that you only spend about 50% of your income, because, you may have to start paying just about that amount to Revenue Canada. From the time that you return to Canada, you will be subject to Canadian income tax on your world income.
There is no requirement to close your IBC when you return to Canada, but it may not be such a bad idea.
If you maintain your ownership of shares in your IBC as a Canadian resident, you will be subject to tax personally on all the income earned by the IBC, regardless of whether it is paid to you or not. This is known as “Foreign Accrual Property Income”, or “FAPI”. FAPI is what prevents a Canadian taxpayer from sheltering investment income through an offshore company.
On the other hand, if you wind up your IBC before entering Canada, all your investments may benefit from a “step-up” in cost, meaning that, for future capital gains purposes, the tax cost of each investment will be equal to its value at the time you enter Canada.
The annual income from your investments will be taxable to you either way as its earned, but holding them personally as a Canadian resident will likely be much simpler and less costly in the long run.
Before doing anything drastic, though, I would strongly recommend that you review your particular situation with a tax advisor.