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Old May 19th 2017, 9:03 pm   #16
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Default Re: READ ME. PENSION RULES UK to Canada

I still have not had a reply, which is unusual. I can only assume that he is taking a few days off to add to his long weekend. I will get back onto it on Tuesday if he doesn't contact me first. Enjoy your long weekend
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Old May 20th 2017, 2:57 am   #17
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Default Re: READ ME. PENSION RULES UK to Canada

Thank you. The wording in that subparagraph of section 56 does, at first sight, seem to support that the 25% lump sum should be tax-free in Canada. Unfortunately, there is more to it.

The paragraph uses the words "foreign retirement arrangement" rather than pension. In the definitions section of the Income Tax Act 248(1) a foreign retirement arrangement is defined as a prescribed plan or arrangement. In ITA language prescribed means specifically identified. Income tax regulation 6803 describes a prescribed plan as "a plan or arrangement to which subsection 408(a), (b) or (h) of the United States' Internal Revenue Code of 1986, as amended from time to time, applies." i.e the paragraph exempts parts of a US retirement arrangement that are tax-free in the US from tax in Canada. I do not believe that the exemption can be assumed to also apply to a UK retirement arrangement.

If he is relying on this subparagraph then I think this is an error. Obviously, if you get a written ruling that the amount is tax-free then take it!
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Old May 20th 2017, 3:27 am   #18
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Default Re: READ ME. PENSION RULES UK to Canada

As I have said before, legal jargon is a minefield and never really totally understandable......we are all part of North America, so if they decide this is not the case, then we will go to Tax Court and make our mark. I am not afraid to do that. I do hope not though as it would be devastaing for our continued settlement here in Canada. I also hope this works out for all the others who have paid up though, that would be a very nice outcome for them......so keep it all crossed.
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Last edited by lins and Stef McLachlan; May 20th 2017 at 3:28 am. Reason: Typo
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Old May 20th 2017, 5:46 am   #19
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Default Re: READ ME. PENSION RULES UK to Canada

If it turns out to be right, what would happen to somebody who takes say 30%? Would they then just be paying tax on 5% rather than 30%?
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Old May 20th 2017, 12:08 pm   #20
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Default Re: READ ME. PENSION RULES UK to Canada

Yes, that would be my understanding. However, under HMRC rules you cant commute more than 25%....the rules do not allow it, so I have been told by the Pension provider we have.

That is the maximum, so I would get that in writing from your provider to clarify. It is 25% of the Crystallisation figure......you dont ordinarily get that when they tally up. We had to ask for it. They usually send you a letter giving you your options....with us it was a smaller lump sum for a higher monthly pension, a maximum lump sum, smaller pension, a maximum lump sum and a small pension to start, increasing at retirement age. We opted for the third option. Then they work it out and give you what you ask for.

My husband took early retirement after 25 years in the Police at age 55. His pension increases when he gets to retirement age proper.
Hope this helps
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Old May 20th 2017, 1:45 pm   #21
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Default Re: READ ME. PENSION RULES UK to Canada

Just to chime in, yes 25% is the maximum that can be taken from the pension proceeds as a tax free lump sum in the UK (aka PCLS - Pension Commencement Lump Sum) - this is for money purchase pots. Defined Benefits stuff (like police and civil service) has a different calculation but the same principle.

The rest (75%) must be used to provide for a retirement income, either through an annuity or an income drawdown (although it is not mandatory to then take any income from an income drawdown) - the income from either is then taxed as normal (hence it is normally pretty dumb not to take the 25% as it is tax free)
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Old May 20th 2017, 3:47 pm   #22
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Default Re: READ ME. PENSION RULES UK to Canada

I agree that it would be dumb to take less than the 25% maximum Tax free lump sum. We have known of many Police officers who have retired and died within a couple of years, which if they opted not to take the maximum would mean that their spouse would only have got a spousal pension, which is a lot less and they would not have benefitted from the lump sum. As you never know, we thought it optimal to take the Max tax free we could.
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Old May 20th 2017, 4:21 pm   #23
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Default Re: READ ME. PENSION RULES UK to Canada

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Originally Posted by lins and Stef McLachlan View Post
I agree that it would be dumb to take less than the 25% maximum Tax free lump sum. We have known of many Police officers who have retired and died within a couple of years, which if they opted not to take the maximum would mean that their spouse would only have got a spousal pension, which is a lot less and they would not have benefitted from the lump sum. As you never know, we thought it optimal to take the Max tax free we could.
Excellent reasons, but the reason I said it was dumb not to take it is precisely because it is tax free. If someone said to you:

1. You can have £100k which pays out over the rest of your life and is subject to normal income tax

2. You can have £75k which pays out for the rest of your life and is subject to normal income tax PLUS £25k tax free (and do what you want with it, invest it and take money as a tax free income)

Which makes more sense?

The choice really is as stark and as clear as this for anyone who does NOT have a Final Salary type pension (i.e. has a personal / stakeholder / Works DC pension - like me!), although I agree it tends to get a bit buried in final salary type statements.
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Old May 20th 2017, 4:37 pm   #24
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Default Re: READ ME. PENSION RULES UK to Canada

I'm not clear on this. The way it was described to me if I take the lump sum and opt for a residual pension, from what I was being quoted, the residual pension seems miniscule. But mine might be from a final salary scheme I'm not sure.
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Old May 20th 2017, 5:02 pm   #25
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Default Re: READ ME. PENSION RULES UK to Canada

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Very, very interesting and good for you sticking to your guns!
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I meekly made the assumption that if I transferred my UK Personal Pension to Canada, then I could kiss goodbye to any 25% PCLS, which is why I have already rolled my UK PP over in to a UK Income Drawdown, specifically to release my PCLS before we move to Canada.

Another perspective-Canada to UK taxation consequences.

I recently moved to the UK after a lifetime in Canada. Foremost in my mind was how my RRSP/RRIF and TFSAs would be treated for tax purposes in the UK. I spent considerable time talking to my accountant, and viewing HMRC and CRA guidelines, and of course the international tax treaty between Canada and the UK.

Sorting thru' the various HMRC and CRA guidelines, and perhaps more importantly, the many free-to-view tax blogs, the consensus was that if one wanted to 'cash out' a lump sump payment from a Canadian pension, under favourable terms, and avoid taxation in a less favourable jurisdiction, it was best to do so while still a tax resident of Canada. Of course the situation for others may be different.

I had initially thought that, if necessary, I would simply cash out my RRIF after settling in England, pay the 25% withholding tax, and bingo, I would be home free. Not so. Had I done so, HMRC would have taxed all the dividends and capital gains from the day of the plan inception-some 34 years ago. HMRC does not recognize an RRIF as Canada does and would have regarded any dissolution, partial or complete, of the plan as worldwide income. Like the OP, I was outraged, the contributions, dividends and gains were made in Canada. UK rules, Canada rules-they are different. Fortunately for me, I decided to leave my RRIF in Canada-I got an actuarial summation of maintaining the RRIF in Canada, and for me, it was a no brainer.


It's a brave person who takes on the taxman-their guides and regulations are often obtuse. Good luck to the OP.
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Old May 20th 2017, 9:39 pm   #26
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Default Re: READ ME. PENSION RULES UK to Canada

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Another perspective-Canada to UK taxation consequences.

I recently moved to the UK after a lifetime in Canada. Foremost in my mind was how my RRSP/RRIF and TFSAs would be treated for tax purposes in the UK. I spent considerable time talking to my accountant, and viewing HMRC and CRA guidelines, and of course the international tax treaty between Canada and the UK.

Sorting thru' the various HMRC and CRA guidelines, and perhaps more importantly, the many free-to-view tax blogs, the consensus was that if one wanted to 'cash out' a lump sump payment from a Canadian pension, under favourable terms, and avoid taxation in a less favourable jurisdiction, it was best to do so while still a tax resident of Canada. Of course the situation for others may be different.

I had initially thought that, if necessary, I would simply cash out my RRIF after settling in England, pay the 25% withholding tax, and bingo, I would be home free. Not so. Had I done so, HMRC would have taxed all the dividends and capital gains from the day of the plan inception-some 34 years ago. HMRC does not recognize an RRIF as Canada does and would have regarded any dissolution, partial or complete, of the plan as worldwide income. Like the OP, I was outraged, the contributions, dividends and gains were made in Canada. UK rules, Canada rules-they are different. Fortunately for me, I decided to leave my RRIF in Canada-I got an actuarial summation of maintaining the RRIF in Canada, and for me, it was a no brainer.


It's a brave person who takes on the taxman-their guides and regulations are often obtuse. Good luck to the OP.
Wouldn't the easiest thing to do with the TFSA be to cash it out in Canada and then transfer it to an ISA when you're settled in the UK? That shouldn't incur any taxes?

If you cashed out an RRSP and paid the CRA their 25% would you also have to pay the HMRC for dividends and capital gains taxes or does the HMRC recognize the status of the RRSP?
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Old May 20th 2017, 10:15 pm   #27
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Default Re: READ ME. PENSION RULES UK to Canada

HMRC do not recognize RRSPs as-tax sheltered savings vehicles.

https://www.gov.uk/hmrc-internal-man...-relief/dt4617
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Old May 21st 2017, 1:30 am   #28
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Default Re: READ ME. PENSION RULES UK to Canada

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Originally Posted by lins and Stef McLachlan View Post
As I have said before, legal jargon is a minefield and never really totally understandable......we are all part of North America, so if they decide this is not the case, then we will go to Tax Court and make our mark. I am not afraid to do that. I do hope not though as it would be devastaing for our continued settlement here in Canada. I also hope this works out for all the others who have paid up though, that would be a very nice outcome for them......so keep it all crossed.
Stef

I know nothing about the tax you're talking about. We've been here for almost 49 years, and cashed in any "stamps" paid in the UK when we left.


BUT I do have to wonder about your statement above .....

we are all part of North America, so if they decide this is not the case, then we will go to Tax Court and make our mark.


FYI, Canada is a separate country. We are no longer ruled by the UK ..... thank heavens!

The US, thank god, is also a separate country, and what they do below the line has absolutely no bearing on the tax situation in Canada ..............

unfortunately, if you have every worked for pay in the US, the US IRS is starting to come after people claiming tax be paid on ALL earnings in other countries after that person left the US


Just think .................. we could be suffering under The Donald!
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Old May 21st 2017, 3:47 am   #29
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Default Re: READ ME. PENSION RULES UK to Canada

I agree with that you have no idea about the tax we are talking about and you have misinterpreted my statements. I was merely drawing parallels which are far greater between the UK and Canada than between the US and Canada. It is true Canada is not ruled by UK, but it is still happy to have the same legal system and enjoy the Royal Family and all the kudos that association still affords to Canada as a result.

it is not fair to treat one set of immigrants to different standards and rules compared to another. It is just plain wrong by anyones moral compass to think it acceptable to take someones pension tax free lump sum and say that Canada has any entitlement when it has been wholly earned in another country. The monthly pension should be taxed in Canada, I do not have a problem with that being worldwide income as it is income which is ongoing AFTER settling here.
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Old May 21st 2017, 4:09 am   #30
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Default Re: READ ME. PENSION RULES UK to Canada

It's the "we are all part of Notrh America" that I do not understand!

What has the fact that Canada is on the North American continent to do with the tax problems faced by you and others?

The implication I got from what you said was that Canada had to do the same as the US. Going to the Tax Court will not change that!

Nor will it change the fact that if you are drawing a state pension from the UK, it stays at the level at which it was first paid. You still do not get any increases that may accrue to pensioners in the UK and many other countries, because Canada has not signed the necessary treaty!
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