Will the US Benefit from the End of Canada’s Investor Immigrant Program?
by Hugh Stephens
China US Focus
March 1, 2014
Canada’s most recent federal budget, unveiled on February 11, announced an end to Canada’s immigrant investor and entrepreneur program. This decision killed a channel to Canadian permanent residency and citizenship that had existed since 1986, and which had brought some 130,000 investor immigrants to Canada over the years, many of them from China. The Canadian decision will have some impact on similar US programs.
The budget documents did not have much good to say about the program:
“For decades, (this program) has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require. There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country. Overall, immigrant investors report employment and investment income below Canadian averages and pay significantly lower taxes over a lifetime than other categories of economic immigrants”.
The passage cited above succinctly describes the controversy that has dogged this program. It has been blamed for everything from high real estate prices in Vancouver to tax evasion by some investor immigrants who deposit their families in Canada and return to Asia to continue making money while allegedly overlooking the fact that Canada requires permanent residents, whether citizens or not, to pay tax on their global income. One of the main problems with the program was that, unlike some other investor programs, the funds generated were seldom put to good use by generating economic development. The program required that investors have a net worth of CAD$1.6 million (US$1.5 million) and invest $CAD800,000 (risk free) for 5 years. After that time, the investor received a return of the funds without interest. The thresholds were low by contemporary standards and the cost to the investor was minimal The funds were held by the provincial governments and often simply sat on provincial balance sheets, instead of being used for at-risk, but productive, investing. The program was not designed specifically for Chinese investors but in recent years about 85% of the applicants to the program came from Mainland China. The Canadian Consulate in Hong Kong, which handles applications for the program, was so swamped that the process was frozen in 2012, with 65,000 applicants still in the queue. Those applications will no longer be processed, and applicants will have their fees refunded.
Reaction to the announcement has been mixed within the immigrant community, but has received widespread support in Canada. While there has been some negative reaction from Chinese immigrants, there has also been support for the change from within the Chinese immigrant community. Support has come particularly from those who qualified as independent applicants or who have been in Canada for some time and argue that they have made more of an effort to adapt to Canadian life.
Will this change alter Chinese perceptions of Canada as an attractive place in which to live and invest, and what impact will it have on other countries? It will undoubtedly have a negative impact on investor class applicants and could result in an increase in applications to the US, through its EB-5 investor visa program which has recently come under scrutiny for alleged corruption, although those with plenty of money and no real desire to emigrate permanently still have many other destination options including Australia, Portugal and Cyprus to choose from. The bar to entry varies significantly from country to country, with both the U.S. and Australia having significantly more stringent requirements than the recently cancelled Canadian investor program. The US requires a $1 million investment ($500,000 in certain "economically depressed" areas) and the creation of a minimum of 10 jobs over two years. A look at the numbers of applicants clearly highlights the lopsided nature of the Canadian program. The US issued 6,895 EB-5 visas to Chinese nationals last year whereas Canada had over 57,000 Chinese applicants in process. Despite the dampening impact on Canada as a destination, the country will continue to welcome immigrants, including many from China, which was Canada’s number one source country of immigration last year. However, the programs will be targeted more at those with language skills and professional training, as well as entrepreneur and investor programs where funds are invested in at-risk projects, creating a specified number of local jobs.
The changes are not limited to immigration programs. Citizenship requirements are also being tightened. Those seeking citizenship must now live in Canada for the majority of the year (183 days minimum) for four of the six years prior to application, must file tax returns, and must have proficiency in either English or French. These more stringent policies, especially the tax return requirement, are to ensure that the claims of permanent residency and the payment of taxes align. Given Canada’s relatively generous medical and welfare benefits, the government wants to ensure that those who qualify for permanent residence and citizenship make a fair contribution to the treasury. The residency measures have been criticized however for ignoring the global nature of business and the fact that new residents to Canada, just like existing residents, may spend a considerable portion of each year doing business abroad.
While there seems no doubt that these changes will discourage some potential immigrants, they will bring Canada’s immigrant programs more in line with competing countries and ultimately should help ensure continued public acceptance of the existing immigrant intake levels. The current high levels of immigration to Canada can only be sustained if there is general public acceptance that those who arrive in Canada are prepared to shoulder their fair share of the burden and are committed to accepting the responsibilities of citizenship and integrating into Canadian society. When studies show that millionaire investor immigrants paid on average $100,000 less in income tax over 20 years than those who entered Canada under the domestic caregiver program, then there is something seriously wrong. These new measures will close a program that was threatening to undermine public acceptance of continued large-scale immigration while expanding opportunities for those with talent, education, skills and entrepreneurial initiative who wish to make a new life for themselves and their children in Canada. The similar US program, which is not without its critics, could well see an increase in applications as the door for investor immigrants closes to Canada.
Hugh Stephens is an Executive-in-Residence at the Asia Pacific Foundation of Canada and a Fellow at the Canadian Defense and Foreign Affairs Institute.