A Taxing Question

Discussion in 'Canada' started by Tiffytinytanks, Feb 8, 2010.

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  1. We are planning to emigrate to Canada this year and would like guidance on the Tax. Can anyone tell me what tax would be applied to our savings earned in the uk along with a military pension and a lump sum (which is tax free from the army after 22years service). What is the best way to transfer the money to a Canadian account?
    I hope someone can point us in the right direction.

    Thanks!
     
  2. This has been discussed on here in the last couple of years. My understanding is that your pension will have your personal allowance deducted and then will be taxed at the usual rate (@ 20% at the moment). If you have a War Pension, that will be paid tax-free.

    All your UK savings will be taxed at 20% unless you present the R85 form to the company. But why would you keep a UK savings account if you are emigrating?

    The fact that you have UK based earnings and have been taxed on them should be declared to the Canadians who will make their own deductions (or not).

    The cheapest way to transfer large amounts of cash is to use the large foreign exchange (FX) companies.

    Litotes
     
  3. Tax is simple; however do you have your PR (Permanent Resident) Cards? PR Cards take several years to get, if you have only recently started the process you'll not be allowed to stay for more than 6 months here in Canada (and you'll have to pay UK tax). As a PR card holder you can receive your pension tax free from the UK, however you must declare this to the tax office here (Canadian Revenue Agency), they will tax you on your worldwide earnings. You'll need a SIN (Social Insurance Number) card to work and fill out a tax return.

    Any funds you bring have been taxed by the UK and therefore are not taxed here, savings, lump sum etc. I used HIFX to move money, and later Moneycorp, both were good.

    You'll need to understand a great deal about this move if you want it to go smoothly; I wonder how much planning you have done?

    Good luck, we've been here four years and are 100% happy!
     
  4. What I'd like to know is how those military that’re posted to BATUS for example, and immigrate while they're there, get round the problem of tax on their pension gratuity?

    If I've read the rules properly, you're deemed as a 'resident for tax purposes' once you've activated your Permanent Residency (PR) and made some form of tie with Canada, i.e. opened a bank account, put a deposit on a house, bought a car etc etc.

    As previously stated, from that point on you have to declare world-wide income to the Canadian Revenue Agency. I know that due to the dual-taxation treaty you don't have to pay Canadian tax on the money you've already paid UK tax on, however, the gratuity is tax-free in the UK so the treaty doesn't apply as far as I can see.

    To that end, you're legally obliged to declare your gratuity payment to the Canadian Revenue Agency and they're going to take a large lump of it off of you.

    Can anyone shed any light on this or have I opened a can of worms? :?
     
  5. I am by no means a tax expert, and will face that problem myself in oh about 40 years when I get my preserved pension and terminal grant. Worst case, you will pay tax on it.

    Bear in mind however, that Canadian Income tax is self-assessing, and it is your entire income that is assessed, along with any possible deductibles. Most people, particularly in the military, end up with a refund each year, from $500 to upwards of 6000 ish. Also, you can elect to pay extra tax per month (form TD-1 I believe), so if you are going to receive your gratuity in a given year, fill one of those forms out and elect to pay $150-200 per month, therefore by tax time (march), any tax, if owed, will already be paid, and you may in fact be entitled to a refund.

    I will add that for the best answer, contact a tax professional (H&R block) for clarification, and they may even be able to find a loophole for you, or at least minimise the amount you pay.
     
  6. Q: What I'd like to know is how those military that are posted to BATUS for example, and immigrate while they're there, get round the problem of tax on their pension gratuity?

    A: UK military posted to BATUS are not resident in Canada for tax purposes, they are deemed to be UK resident, even if they leave the Army and just move over to civilian life there, they only become a Canadian resident after their last day of service has passed.

    Q: If I've read the rules properly, you're deemed as a 'resident for tax purposes' once you've activated your Permanent Residency (PR) and made some form of tie with Canada, i.e. opened a bank account, put a deposit on a house, bought a car etc etc.

    A: Yes and no, you have a 3 from 5 rule, that is you can land with say 2 years service remaining, go back to staging on and then come back to Canada, however you must remain in Canada for the next 3 years to maintain your residency requirements. During the 2 years that you have a PR Card but are outside of Canada you only pay UK tax. (even if you have a bank account here in Canada).

    Q: As previously stated, from that point on you have to declare world-wide income to the Canadian Revenue Agency. I know that due to the dual-taxation treaty you don't have to pay Canadian tax on the money you've already paid UK tax on, however, the gratuity is tax-free in the UK so the treaty doesn't apply as far as I can see.

    A: The duel taxation agreement you refer to is a reciprocal agreement, which is not simply a 'you've paid tax in the UK so now it's ok' it is an understanding that each country recognises each others tax breaks, so your lump sum is tax free in the UK and therefore is not declared to the Canadian Tax Revenue. However you’re following monthly payments, which I receive tax free are declared to the Canadian tax people and I pay tax on it about now, ie March each year. They use an exchange rate for the whole year Jan - Dec, which is dropping like a lead balloon, 2.40 dollars 4 years ago to about 1.55 now!

    Q: To that end, you're legally obliged to declare your gratuity payment to the Canadian Revenue Agency and they're going to take a large lump of it off of you.

    A: No it is yours 100%. (No UK tax and no Canadian tax).

    Q: Can anyone shed any light on this or have I opened a can of worms?

    A: No can of worms, too many well meaning people get it wrong, I've done this and am still 'living the dream' and I stand but every response I offer here, good luck my friend.
     
  7. Thanks for the reply, that's cleared things up a bit. I've got a couple of questions left you might be able to help with:

    I knew about the 3 in 5 rule but what about those that get the PR whilst posted to Canada, don't go back to the UK, and leave the Army whilst they're there?

    This is the key statement I was looking for, but it's not how I had interpreted the rule. Where does it say that the 'tax breaks' are the same for both countries?

    Once again, thanks for your help :)
     
  8. I was not posted to Canada when I left, however, without being too honest, I did manage a sizable chunk of annual, resettlement (job attachment) and gardening leave here in Canada (8 months). The advice I got was to write a letter to CRA and say that my family had landed, but I had not for tax purposes. I wrote saying that I was still available for service with the Army worldwide and therefore still resident in the UK for tax purposes, and that the day following my discharge I'd become resident in Canada and would pay tax to Canada from then on in.

    CRA accepted this without a concern, their response was my authority, they accepted that a reciprocal agreement exists and my Army pay and allowances were taxed as usual in the UK and my lump sum was paid into my bank before I moved it over here (there being no reason to enter this on my tax return T4 for that year to CRA as they'd agreed it was a UK issue until after my discharge date.

    This line of reasoning means that a UK serviceman posted to Canada is resident in the UK for all their tax issues, not Canada.

    So in summary, tell CRA your plans, based on the fact you are and will remain UK based for tax until after your final day of service, tell them that you will pay tax on all your worldwide earnings following that date, keep it simple and business like, they will write back and say:

    1. Good, thanks for the info, no probs.... (this is what I got back)
    2. Thanks we have further details we need...(worst outcome, and very unlikely but not a show stopper, they understand that you are a serviceman and need to pay tax on your UK military pay).

    Take care matey