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Old 26-05-2015, 15:58   #1
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Canadian Flagging and Taxes

Hi All,

This is my first real post here... but I anticipate there to be at least a few more as my wife and I plan for a life on the water after retirement.

I was hoping someone might be able to enlighten me about the pros and cons of registering a yacht as a Canadian vessel. I am familiar with the importation process, and the mandatory taxes and fees applicable, but when it comes to a yacht we plan to sail mostly abroad, I am much foggier.

We plan on buying a used Cat in the 40-50 foot range, and following the trade winds for 5 or so years. I would like to flag it Canadian, but I am concerned about taxes and duty should we ever return to Canada with the boat. So, a flag of convenience comes to mind, but again, I would appreciate any feedback anyone has.

I guess the questions would be...

1. Buying a used boat and flagging it Canadian. Does one pay duty on a used boat?

2. If the boat remains out of Canada, I assume taxes are deferred until the boat returns to Canadian shores. Is there a grace period, or are taxes due immediately upon return?

3. A flag of convenience. Say we registered the boat in the Cayman's, are there any implications when returning to Canada... or in other waters for that matter?

Thanks!!!

Steve
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Old 05-07-2015, 18:25   #2
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Re: Canadian Flagging and Taxes

I thought I would answer my own question, just in case someone searches for something similar.

Since posting, I have learned that even if I were to incorporate and flag my vessel with a tax friendly country, as a Canadian national, I would still have to pay taxes on the vessels as soon as I returned to Canada. So, essentially, it looks like there is no real advantage to using a tax shelter flag, and there are advantages to flying a Canadian flag. One can avoid paying duty (9 1/2%) if the boat was made in the US. Thanks NAFTA. Hmmm.... I wonder if those early Leopard 47 were made in Rhode Island
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Old 05-07-2015, 22:58   #3
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Re: Canadian Flagging and Taxes

Hello Red Herring,

We are in the process of buying a Lagoon 420 in the Caribbean and I have been working with Transport Canada to get the first time vessel registration going.

I'm mostly interested to have it registered here so the paperwork and all is clean and no worries about that whenever we go to sell in future. Plus I do want a maple leaf on the back of the boat!

No plans to bring it back to Canada at the moment, but who knows it could end up back here sometime down the road.

Best of Luck on your purchase!
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Old 06-07-2015, 01:08   #4
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Re: Canadian Flagging and Taxes

We did this and our boat is Canadian registered, but the boat has remained out of the country and as such, Canadian taxes have not been due. Below is our experience and what I found when we were shopping, plus a couple additional thoughts for consideration.

1. Buying a used boat and flagging it Canadian. Does one pay duty on a used boat?
- I think you answered this yourself already.....yes.

2. If the boat remains out of Canada, I assume taxes are deferred until the boat returns to Canadian shores. Is there a grace period, or are taxes due immediately upon return?
- Correct, taxes are deferred until the boat returns. No grace period as far as I understand. Federal taxes and duty (if applicable) are due on return. We're Alberta residents, so no PST would currently be due for us, but I think you'll find that the province will want their money soon also after your return. You'll also likely find that the province of the port on the registry will likely send a bill for PST (based on their estimated value of the boat) within a year of it going on the registry. BC did this to us, as our port of registry is Vancouver. I finally had to send them a a formal letter of declaration, plus documentation showing that the boat had been purchased outside of Canada, and had not returned since purchase. I love that tax departments are allowed to operate under a 'guilty until proven innocent' methodology. The burden was on me to 'prove' this before they finally agreed I didn't owe PST.
- There is a mechanism to bring a boat into Canada 'under bond' to have work performed on it, then take it back out after the work is completed, but when I talked to Customs in 2011, they indicated the scope and duration of these has been tightened from past practices due to what they perceived as abuse.

3. A flag of convenience. Say we registered the boat in the Cayman's, are there any implications when returning to Canada... or in other waters for that matter?
- We ended up in the same spot as you that there was no real benefit. However, we know a few Canadians that have their boats registered in the BVI's and have had no issues when cruising. As you found though, taxes would be due upon return.

There are a couple other issues to consider when buying out of country though:
- Admeasuring. Depending on tonnage (and length?) the boat may need to be 'admeasured' (tonnage, draft, LOA, beam, etc) by an approved Canadian surveyor for registration. There are only a couple in Florida and the Caribbean, so you'll need to fly one in to measure the boat potentially if you buy one in the Caribbean. There are a few scattered up and down the east and west coasts also from memory. Not sure about Europe and elsewhere, but clearly people get it done. You'll need to research the requirements since I can't recall what the size triggers were, but all the boats we looked at triggered it (~45'+ and >18 tonnes gross). Frankly it strikes me as an archaic requirement as they won't accept engineering drawings for production boats, it needs to be measured.
- Tax requirements where you buy. Some of the Caribbean countries (ie. St Lucia) want to assess taxes if the transaction occurs there. This can be avoided by executing the transaction 'offshore', and is easily dine, but you need to be mindful. Additionally, if you buy a boat in the US, quite a number of states assess state tax if the boat remains longer than a specified period. For example, I believe Washington and Florida give you six months, then state tax is due.
- Finally....are you really sure you'll bring a 40-50' cat back to Canada after 5-6 yrs of cruising. I love sailing at home, but it's cold back there ;-)

Just our experience and thoughts. YMMV.

Best of luck,
Mark
Amel Super Maramu
Currently cruising South Pacific with our 2 kids (13 & 15)
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Old 06-07-2015, 12:20   #5
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Re: Canadian Flagging and Taxes

Thank you for the input!
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Old 06-07-2015, 12:33   #6
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Re: Canadian Flagging and Taxes

Quote:
Originally Posted by Red Herring View Post
One can avoid paying duty (9 1/2%) if the boat was made in the US. Thanks NAFTA. Hmmm.... I wonder if those early Leopard 47 were made in Rhode Island
Those were made in Mexico and are called the Leopardo 47.

Actually there are some good choices in US made cats: Maine Cat, Manta, Lagoon TPIs, Ocean Cat, Endeavor, Alpha, etc.

Or just buy one of those Gunboaty things.
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Old 06-07-2015, 12:34   #7
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Re: Canadian Flagging and Taxes

Hobi_ind beat me to it.. The tonnage measurements are a royal PIA and costly. Keep it under 12 meters and you don't have to do it..
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Old 06-07-2015, 18:47   #8
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Re: Canadian Flagging and Taxes

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Originally Posted by Sand crab View Post
Those were made in Mexico and are called the Leopardo 47.

Actually there are some good choices in US made cats: Maine Cat, Manta, Lagoon TPIs, Ocean Cat, Endeavor, Alpha, etc.

Or just buy one of those Gunboaty things.
Crikey! I meant Lagoon 47. I know the TPI Lagoons were US origin. But I'm not sure about subsequent Lagoons from the mid 90's. We like the Leopard 46, but don't really care for the Leopard 47.
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Old 06-07-2015, 19:03   #9
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Re: Canadian Flagging and Taxes

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Hobi_ind beat me to it.. The tonnage measurements are a royal PIA and costly. Keep it under 12 meters and you don't have to do it..
Good tip... but that really limits the options...although a Lightwave 38 could do nicely.

I had better read the regs on tonnage certificates. This sounds like it might be a PITA.
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Old 06-07-2015, 19:44   #10
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Re: Canadian Flagging and Taxes

I bought my 4 year old IP 460 in Seattle. Had a document company get it off the US Coast Guard list and registered it nationally in Canada for me...about $450 total cost I think.
I am Albertan so I sailed it to Victoria and upon clearing customs paid mt GST by phone using my credit card. Done.
No PST, no duty since made in USA.
No Canadian survey for tonnage etc required ( I weigh over 20 tonne)

Anyway that was my experience.
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Old 06-07-2015, 19:53   #11
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Re: Canadian Flagging and Taxes

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Originally Posted by Red Herring View Post
Good tip... but that really limits the options...although a Lightwave 38 could do nicely.

I had better read the regs on tonnage certificates. This sounds like it might be a PITA.
Cats have different tonnage requirements than monohulls. 12M is the cat requirement. I was quoted about $1600USD for a 44ft CAT.
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