eaglestorm

‘It will be split tax year treatment , Hurlabrick, and just two months of tax to pay the CRA.
It will work out advantageously as you effectively split your income over two jurisdictions and therefore benefit from lower tax rates.

llysmabley

Does anyone know if UK ISAs are taxable in Canada ?
I have one still running from before I came to Canada.
They seem to be the same as Canadian Tax Free Savings where the interest is tax free.
The difference is the amount you can put in each year but I have held mine for several years without putting anything in since the initial deposit.
I will declare it but will the interest be taxed by the CRA ?

llysmabley

No quick answer then !
Difficult to talk to CRA about things like this.
The policy seems to be declare it, pay the tax, then appeal.
I wondered if anyone has the answer ?

Hurlabrick

I am not an expert here, but I can say that although a UK ISA and a Canadian TFSA are similar, there is no recognised 'transfer agreement' between them (as there was / hopefully will be again between UK Personal Pensions and Canadian RRSP's etc.).

So I think your UK ISA will be like any other overseas investment or savings account - you should have declared this when you arrived in Canada and you should declare the interest annually and expect to be taxed on it by CRA.

Happy to be shot down here if I am wrong or have somehow over-simplified it!

Collie

Agree with Hurlabrick - I paid Canadian tax on my ISA before deciding that this was inefficient and moving the funds to Canada. (And don't forget the T1135 if your UK assets are more than 100k, as the penalties are horrific!)

llysmabley

What's a T1135 ?

Collie

It's a form which you download from the CRA website and submit with your tax return each spring if you have oveseas assets worth $100,000 or more. My understanding is that these assets include bank accounts, savings accounts, overseas stocks and shares (even if held with a Canadian broker), houses, land, cash or share ISAs... pretty much anything except pension funds (which includes SIPPs). Don't panic too much though - you're only taxed on the income which these assets generate (together with any capital gains when you sell them) - not the value of the assets themselves.

The penalty for not submitting this form is $25 for each day you are late, up to a maximum of $2,500. Where the failure to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months (maximum $12,000), though if you didn't know about it and haven't filed one, the "voluntary disclosure program" may reduce these penalties.

llysmabley

I looked it up today and it seems to be just property or any investments connected to property.
I think a Swiss villa would be included, especially if you are a government minister !
It would also be a property in the UK not yet sold.

Collie

To llysmabley : I am almost certain that what you say is incorrect, judging by what my accountant and accountancy sites on the web say. The T1135 itself also makes it very clear that ALL foreign savings, investments and property need to be declared.

See for example T1135 Penalty | WBLI Chartered Accountants

Siouxie

Incorrect I'm afraid

"Property" in this instance, does not just refer to physical bricks and mortar but also to investments, shares, bank accounts etc.,

TaxTips.ca - T1135 Foreign Income Verification Statement

• amounts in foreign bank accounts
• shares in foreign companies, even if held in a Canadian brokerage
• shares of corporations resident in Canada held outside Canada (e.g., in a brokerage account in another country)
• interests in non-resident trusts
• bonds or debentures issued by foreign governments or foreign countries
• life insurance policies issued by a foreign issuer -
• a property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property (e.g., a call option which has been purchased)
• interests or units in offshore mutual funds
• real estate situated outside Canada (unless mainly held for personal use and enjoyment)
• other income-earning foreign property

Steve_

The answer is yes. It's only a tax benefit if you live in the UK as it free from UK tax. The same is true of TFSAs, they are only free from Canadian tax. It's quite possible to hold all kinds of investments in a TFSA that are subject to a wide variety of foreign taxes.

There is no point to an ISA if you live in Canada and there is no point to a TFSA if you don't live in Canada, all it will do is create you a massive tax headache.

Steve_

Your basic mistake going by your original post is you took the lump sum, which the CRA does NOT see as being an annuity and is subject to Canadian income taxes. We had this thread on here recently, JonBoy dug up the case law, I can't remember the ruling exactly, it didn't fit my reasoning that it wasn't an annuity but the end result was the same, not a pension, not exempt from Canadian tax.

There is no provision in the UK-Canada tax treaty (unlike the US-UK tax treaty) for the lump sum to be considered exempt from Canadian tax.

The other part of your drawdown which was taxed in the UK probably is an annuity (although it's a drawdown, not an annuity, technically). That's a separate issue, the CRA has held to the 10% part of the treaty because there is UK tax, but as far as policy goes HMRC doesn't usually tax it so basically the choice is yours, leave it as is, and have it taxed in the UK and part taxed in Canada, or get HMRC to stop taxing it and then CRA will tax the whole amount.

I suspect either way you'll probably end up paying a similar amount of tax.

Bear in mind you clearly haven't done your T1 correctly, you can't exclude the 25% lump sum.

BexB

Thanks for the reply.

Just to be clear, I declared the full gross amount of the drawdown, even though 25% was tax-free in the UK. It would be nice for the CRA to adopt a similar approach, but (despite the thread you mention, which I'm familiar with) I realise this is highly unlikely. My issue is not my paying Canadian tax on the gross amount, it is that in addition to paying the CRA the full tax due on the gross amount, since I cannot get full credit for the tax deducted in the UK I'm effectively being taxed twice.

Clearly if I can persuade HMRC not to deduct any tax then the issue goes away, since there is no UK tax which cannot be fully relieved. So what's the best way to do this? They have already refused my request under the DTT. I drafted a letter to HMRC (not sent) which explains that CRA are only allowing 10% relief, so in the spirit of the DTT the UK should only tax me up to 10%.

It makes no difference to me whether the CRA can be persuaded to give relief equal to the full tax paid in the UK, or HMRC limits the tax deducted to that which CRA will permit relief on. But I don't know which of them should change the treatment and, let's face it, there's is no incentive on them to do so.

gemiran

Apologies if I am missing something. I did read through the whole chain. However the issue seems to be the UKtax you owe for the specific UKtax year.
For the UK you owed tax on GBP 11000.
If you haven't taken an initial 25% tax free lump sum, then 25% of your 30000 withdrawal is tax free. So you owe tax on 22500. But you have 11500 personal allowance, so UK tax is 20% of 11,000 = 2200. Someone above has already pointed that out i think. But you paid more than this. So to me the answer is to file a UK tax return and get a refund.
When I read through the thread the discussion is what the CRA a low as a tax credit, which is not the issue, or whether HMRC Will make your payment tax free. But here I think you're looking for a one off agreement with HMRC which they have declined. So in a nutshell what I haven't read is the idea to basically file a UK return as we do in Canada and get that years refund, as you have paid too much UK tax. My understanding is that a a Canadian tax resident we only pay tax in UK on income in the UK i.e. your pension withdrawal.

gemiran

https://www.gov.uk/government/publications/income-tax-claim-to-personal-allowances-and-tax-repayment-by-an-individual-not-resident-in-the-uk-r43

Form R43. There are also separate guidance notes.
Fill out section C5. Apply for a personal allowance under F1.
Note3, page 4 of guidance notes allows you the personal allowance if you are a UK citizen.

Full disclosure, I am not a financial advisor and have no professional background here. This is simply an idea for you.
In the mid 90s however I did file R43s to get a UK tax rebate back, possibly on rental income, but to be honest it's so long ago I can't remember exactly what for. I do remember getting a UK tax refund however.

If you get the rebate for GBP over the GBP 2200 you owe, I think things work for you. You Wil have paid tax of GBP 2200 and CRA give you 10& credit on 22500.