Unlike the average newcomer, business immigrants are not concerned with putting food on the table, but rather with how to continue their success and possibly reach new heights through endeavours in the new country.

Their challenges and needs are unique, and largely involve grasping a new financial system that works very differently than the one they left behind. As such, specialist immigration lawyers and advisors have their task cut out for them.

“Business immigrants want good tax advice, need local connections to scope out Canadian opportunities, and good money market instruments so they can park their funds safely until they decide what to do next,” says Eddie Chan, senior wealth advisor, ScotiaMcLeod.

Navigating the Canadian system

Whether an investor immigrant or a skilled worker, as new Canadians, they all need to acquire some basic understanding of how financial planning is done in Canada, says Tina Tehranchian, financial advisor, Assante Capital Management.

An immigrant herself, Tehranchian specializes in assisting business owners and self-employed professionals to build wealth and develop sound financial and estate plans.

One of the first things she informs her clients about is establishing an immigration trust. Under current Canadian tax law, an immigration trust is generally exempt from Canadian income tax on all of its income, including capital gains, for up to five years.

“As new immigrants to Canada, they can set up an immigration trust in an offshore jurisdiction for the first five years of their immigration,” says Tehranchian.

She also lets these high-net-worth newcomers know that as soon as they become Canadian residents, their worldwide income is subject to taxation. However, the money parked in the immigration trust grows tax-free. Despite its obvious attractions, though, awareness of the trust remains low among newcomers, leaving it underutilized.

“Many of them are not even aware of this until many years after arriving in Canada,” says Tehranchian. “When we’re talking about substantial sums of money, that tax sheltering can make hundreds of thousands of dollars of difference over a five-year period.”

Upping the ante

The trust makes sense for a lot of immigrants who move here under the investor category and carry substantial capital. To qualify under the Immigrant Investor Program (IIP), an individual must have a personal net worth of $800,000 and be willing and able to make an investment of $400,000 in a government plan, according to the Citizenship and Immigration Canada website.

However, that’s about to change, says James Metcalfe, immigration director, Pace Law Firm in Toronto.“The federal government on June 26 announced that they’re going to raise the ante,” he says. Essentially, they’re going to double all the figures. “Starting sometime in November, an individual is going to have to have a personal net worth (PNW) of $1.6 million, and will make a contribution or loan to the federal government of $800,000.”

Not a bad stimulus package for the country’s ailing economy, says Rafael Fabregas, an immigration lawyer with Mamann Sandaluk, a law firm in Toronto. “Ironically, given the current state of economic affairs, Canada more than ever needs more business immigrants, sooner rather than later, to invest more capital and create job opportunities for Canadians.”

Creating a program that will bring investment to Canada was the biggest motivation behind its introduction in 1986, says Gerry Weiner, a former immigration minister who’s regarded as the godfather of the IIP. “I said this is going to bring tremendous investment,” says Weiner, who also occupied portfolios of the secretary of state of Canada and the minister of multiculturalism and citizenship during his nine-year stint as a senior minister of the government.

The program, says Weiner, has grown by leaps and bounds, and has brought billions of dollars into Canada in direct investment. And with the recent announcement of the PNW hike, investment is expected to grow exponentially.

“Raising the personal-net-worth amount would focus the program on high-net-worth applicants, most of whom come from Asia-Pacific, who are better able to engage in wealth-generating economic activity in Canada, by virtue of amount of assets at their disposal and their links to international business networks,” says the Canada Gazette, the government’s official newspaper.

The CIC website shows a total of 2,872 immigrants came to Canada under the IIP in 2009. And with them came a cumulative capital worth of nearly $2.3 billion. By next year that amount will double, assuming the number of immigrants remains in the same ballpark.

Financial planning is vital

This should make the role of financial planning even more important, not just to grow that money, but also from the perspective that a lot of start-up businesses fail mainly because of lack of financial controls and financial management.

This lack of financial management in new businesses is, in turn, often due to a “lack of good personal financial planning,” says Tehranchian. “I think it’s really important to have a solid personal financial plan in place.”

As a financial advisor who specializes in dealing with business owners and self-employed professionals, she helps immigrants get a good handle on their personal finances.

“We can point them to the right sources and save them a lot of time and money, in terms of being able to get to the right people and the right organizations [to] help them out; [to] carry out their business plan.”

Understanding cultural differences

Financial planning aside, some of these newcomers need additional help and guidance to overcome cultural stumbling blocks. For instance, in many cultures around the world, debt is a taboo. Everything is done in cash, and credit cards are rare.

“I always advise [clients] that even if they’ve got enough to buy a car in cash, they should still go and get a short-term car loan [they] can pay off, just to build up credit,” says Tehranchian.

With a bit of credit history behind them, she says, when the time comes to get a mortgage, clients will save thousands of dollars. A newcomer thus understands the distinction between having a good credit history and having no credit history.

Also, strong social ties and reliance on family and relatives in times of crisis create a mindset that requires reformatting once in Canada.

“Some people come from cultures where the family network is very supportive, and acts kind of as their insurance policy,” says Tehranchian. “But when they come here, they lose that network of support.” Further, they’re exposed to a different culture where, when it comes to money, they’re on their own. A good financial advisor brings this to their attention and makes sure they’re insured adequately, and that all their risks are covered.

Taxing matters

Taxation is another important aspect of their learning curve.

“Especially if you’re a business owner, you have to know how the taxation system works to put effective planning strategies in place,” says Tehranchian. “You have to be able to use income splitting with your family members to bring down your tax bracket.”

It helps to be familiar with all the different vehicles available, and know what the tax implications and penalties are.

“That’s why they really need to sit down and talk to a qualified financial advisor rather than the first RESP salesperson who knocks on their door,” says Tehranchian.

Proper advice could save them a substantial amount of money. It can come from multiple sources, and from specific areas of expertise, including accounting, financial planning and immigration law. In setting up a corporation, a business person would seek the services of a business or corporate lawyer and the advice of a tax lawyer.

“We can certainly provide referrals in that respect,” says Fabregas, “but essentially, once an immigrant arrives and is landed in Canada, we can offer assistance in settlement, or the immigrant can seek out opportunities themselves.”

Status at any cost?

However judicious and rigorous a country’s immigration system, there are always a few people with suspect intent who slip through the net. The IIP in Canada is no exception.

“There may be some immigrants in the business immigration category who come here just to get their immigration status,” says Tehranchian.

This small minority do actually “start the business, some of them hoping for it to take off, and some of them just to fulfil the requirements of their business immigration status, and get their landed immigrant status. “But,” she adds, “ I believe the majority of people who come here have genuinely good intentions.”

Ellen Pong, though, a certified financial planner and a board director at Advocis, has seen her fair share of those cases.

“Many immigrants from Asia who come under the investment/business categories participate in the restaurant business. Some open small trading or retail stores and employ three to four people,” she says. But “most close or sell their business after three to four years, when they’ve fulfilled their immigration requirements.” Then, once they’ve secured their Canadian passport, many promptly return to their homeland where they’ve maintained their old businesses or jobs.

There are many other factors that may force immigrants to abandon their Canadian dream and return to their homeland. The majority of people who come here under the investor category, however, stay and become very productive members of their community.

  • Vikram Barhat, is senior writer, Advisor Group.