Could Alberta be the next tax haven for the U.S.'s mega moneyed?
Since the tax cuts administered under President George W. Bush expired in January of this year, the U.S. federal marginal income tax rate has risen from 35 per cent to 39.6 per cent, effectively making it higher than when you combine Canada's highest federal rate of 29 per cent and Alberta's flat provincial tax rate of 10 per cent.
That move leaves Alberta as the North American jurisdiction with the lowest tax rate for the super rich in the continent.
The provincial government boasts that since January 2013, Alberta has one of the most competitive tax environments in North America , being the only province that does not have a provincial retail sales tax and with no provincial capital or payroll taxes, which are often found in many U.S. states.
“The old rule of thumb that Canadian tax rates are hands-down higher than U.S. tax rates is not the case anymore and you need to evaluate on a state-by-state and province-by-province level,” Michael Pereira, a partner at KPMG LLP with international executive services, told the Financial Post earlier this year.
That means that top tier talent making big money in the U.S. banking, entertainment or sports industries may see Alberta as a viable option to call home, considering they would pay less taxes in the province than in most parts of the U.S.
In 2013, American households making between $500,000 and $1 million face an average tax increase of $14,812, according to The Tax Policy Center, a nonpartisan Washington research group. Households making more than $1 million would get an average tax increase of $170,341.
However, as Canadian Business magazine points out, to qualify as a top income earner in Canada one must earn a salary of $135,055 while in the U.S. the threshold is significantly higher at $400,000. As well, American citizens or green card holders are still obligated to pay American taxes wherever they live, meaning to qualify for Canadian tax rates they would have to ditch the U.S. passport.
Perhaps the biggest benefit of these tax differences could come to Alberta's NHL franchises, the Calgary Flames and the Edmonton Oilers.
An analysis of NHL net after-tax salaries following the expiry of the U.S. tax cuts to the rich saw both the Oilers and Flames soar to the top of the league, based on a hypothetical U.S. salary of $2.5 million.
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Canadian and U.S. tax rates are "definitely a factor" some of his clients look at when negotiating contracts, Steve Bartlett with Sports Consulting Group told the Financial Post. But that is not the only factor his clients consider when choosing who to play for, he adds.
“Would you rather make $200,000 less and play for a team that has a Stanley Cup win or would you rather play for a basement dweller and pay less tax?”
Sean Packard, director of Tax at OFS, which offers wealth management services to pro athletes, told Canadian Business that playing for an Alberta team would likely be attractive to NHL players nearing the end of their careers and looking to save up some money.
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