Waste of money: Canadian families and entrepreneurs flee for better places

Taxes Personal Finance High Net Worth Financial Post Magazine

Having assets in safe jurisdictions outside your country of residence is part of the solution to long-term wealth

Publication date:

08 Mar 2022 • 9 March 2022 • 3 minute read • 77 Responses Commuters in Toronto’s Financial District. Photo by Cole Burston/Bloomberg files

“Rule No. 1: Never Lose Money.” – Warren Buffett

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What are the secrets of generational wealth? Is it that someone in the family has created so much wealth that it is impossible to spend or lose it? Does it have the best investments be it real estate, stocks, venture capital or crypto? Does having the right trust structure keep the heirs from spending the wealth unwisely? Or is aggressive tax planning the secret ingredient of the recipe?

These questions have been heard frequently in North America and Europe over the past seven decades, but other parts of the world, such as Cuba, North Korea, China, Venezuela and former members of the Soviet Union, have felt the effects of totalitarian regimes have stolen wealth from many families.

Other families have kept their wealth since the 18th century. For example, the Rothschilds family lived through the French Revolution, World War I, Holocaust and World War II. If all their possessions had been in one country at a critical point in history, the family could have been wiped out. It is therefore clear that part of the long-term wealth solution is having assets in (safe) jurisdictions outside your country of residence. This is a form of diversification. Some of a family’s financial wealth may be lost during periods of uncertainty, but there is still plenty to keep going or start new ventures.

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Many in the financial sector speak of diversification across asset classes such as stocks (Canada vs. global), bonds and alternative investments such as real estate, private equity and even crypto, but what many forget is jurisdictional risk.

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Canada has been a beacon for hardworking individuals and families from around the world since its founding in 1867. Our rule of law and lack of corruption made Canada a desirable place to raise a family, work or start a business. Could things change in such a way that the risk of asset forfeiture to the Crown becomes a significant risk? New.

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However, the path is obscured because the risks are significant: a combination of progressive and high taxes along with significant over-regulation and loss of individual rights and freedoms. This is related to the story of the frog being slow cooked. By the time he feels uncomfortable, it’s already too late to jump out.

Which brings us to this present time. I’ve seen an exodus of family businesses and entrepreneurs from Canada in recent years and the flow is accelerating. These families have moved human and financial capital to safer places. These are not a bunch of trust fund babies, but individuals who see opportunities and dedicate their efforts to them. Sometimes they win, sometimes they lose, but what they have is an understanding of the risks.

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For families of meaningful wealth, we do not recommend the use of ultra-secret, low-tax, offshore jurisdictions, which have become much less secretive thanks to the Common Reporting Standard (CRS). For the record, the United States becomes the most important offshore location in the world because it is not a member of CRS, even though it has meaningful income taxes.

What needs to be completed is a thoughtful analysis of different countries, their pros and cons, with the aim of determining whether there are better countries where the ownership of an investment should be and where the wealth maker should have a passport should have or should live. The key to success is to never lose money. As Warren Buffett’s Rule #2 says, “Never Forget Rule #1” FPM

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This post Waste of money: Canadian families and entrepreneurs flee for better places

was original published at “https://financialpost.com/financial-post-magazine/money-drain-canadian-families-and-entrepreneurs-are-fleeing-for-better-climes”

Categories: Finance