YJMalmsteen

Hi Guys,

I hope you can help me. I am a serving soldier, currently on Loan Service in the Middle East, where I will finish in September 2012. I then have 3 months resettlement in UK before leaving the Army in Dec 12.

Now .... I am a Canadian Citizen by parentage but have never lived there. I sponsored my wife, Jane, for LI status and she landed in 2008 as we bought ahouse in ONT in 2007.

The plan is to take our summer leave next year in Canada and Jane and the kids will stay there as schools need to be sorted for Sep. I will then go back to finish my career.

So .... Even if my family move early to Canada, I will still be a UK tax payer .. Correct?

...... When I leave the Army I will be spending the first month still there helping a friend (our best man) with setting up his Security Business.

...... So if my gratuity is paid into my UK bank before I physically move to join my family, as I will still be a UK tax payer until then, I will not be liable for Can tax ... Correct?

As is the same with all aspects of my life, nothing is ever simple!

Cheers,
YJM

kazbob

We had almost the same plans - myself and the two kids were going to move over before my husband finished his 22 but we found out that even though he would be a British taxpayer his gratuity would still be taxed as we were living in Canada, ie, using Canadian infrastructure - schools, libraries etc. So we decided to stay in the UK until his gratuity is paid in, just to be sure.

However, I don't know if it will be different for you as you are a Canadian citizen. JonboyE is very good at these kinds of things, hopefully he will see your post and reply accordingly.

Good luck.

Karen

Aviator

You could well be deemed a Canadian tax resident:

• You have a home in Canada
• Bank account
• Wife and family in Canada

Read through this:
http://www.cra-arc.gc.ca/tx/nnrsdnts...sdncy-eng.html

JonboyE

Tax-residency can be tricky. It is usually obvious - you are tax-resident where you live - but when it isn't obvious there are no hard and fast rules. It is decided on the balance of facts.

There is one rule however. If you are a serving member of the British Armed Forces then you are tax-resident in the UK. Therefore until December 12th you are tax-resident in the UK. As I understand it, the tax-free gratuity is paid a few days after discharge and the question is where are you tax resident from December 13th onwards.

Both the Canada Revenue Agency guidelines and the UK/Canada tax treaty look at the location of your permanent home and the location of your dependent family as being the most significant factors in establishing your tax-residency. You will have a home available to you in Canada where your wife and children live, and you will be in the UK in temporary accommodation or living in a mate's house. These facts certainly suggest that you will be tax-resident in Canada once you are discharged from the Army and that your gratuity will be taxable in Canada.

The only safe way to ensure the gratuity is received free of Canadian tax is not to establish residential ties with Canada until the cash is safely in your bank. However, there are some things more important than tax and getting your kids established in school may be one of these. It might be worth working out how much tax you will have to pay before making any decisions. It might be less than you are thinking.

I am not going to suggest that you do anything even slightly dodgy like putting the date you became a resident of Canada on your tax return as the date you actually moved here. If you did that and the CRA decided to take a closer look they could charge you the tax in any case plus interest and (possibly) penalties as well.

mardyarse

Oh dear this does not look good. I exhaustively investigated every scenario for a good 18 months before we left. You can look up my old threads under "fedupwithwaiting". We had tax accountants and lawyers on both sides of the pond trying their best to find a loophole. We had no way out I'm afraid.

You will receive your gratuity after you have exited the military ie: the very last payroll. Sign off on the Thursday and exit military, get paid on the Friday effectively.

By having the residency ties already set up with your family, house, bills, owning a car, property tax bills, children enrolled in school you are deemed a Canadian tax resident.

We had to wait for our money to show up in the bank account and then re-booked the flights, accommodation everything because they were a week late with the payment.

Obviously if things have changed since 2007 then this will be your lucky break and I hope to God they have.

YJMalmsteen

But how can I be a Canadian tax payer if I am paying tax in UK, personally living in UK etc. I cannot fathom the reason behind taxing me on a pension schemme earned for 30 years of service. I have been injured in both Iraq and Afghan, served in all corners of the world and this is a British pension scheme. When I receive this I will not be a Canadian resident yet - although my family will. I hate the thought of handing over more than $100k to a government that I have never been a burden to. This may change my plans completely.

Surely the Canadian Government will not tax me if I am still in employment in UK for a few months after leaving the Army. i promised my friend that I would help him setup his business.

Cheers!

Aviator

Did you read the CRA document about being a tax resident?

In addition any pension you receive on an ongoing basis is reportable and taxable in Canada as part of your worldwide income.

JonboyE is an accountant and knows this stuff.

Get yourself a Canadian accountant and plan accordingly.

YJMalmsteen

Sorry mate - after 30 years in the Army, I am not prepared to pay half of my gratuity to Canada, particularly as I have never lived there and used any facilities. I will get round this.

Also the annual pension is taxed at source in UK and therefore not doubke taxable in Canada. This I do know.

If necessary, we will delay moving to Canada until I receive the payout. I stress again, I will NOT pay $100K to the Canadian Government. This gratuity is what keeps us in the military - the promise of a good payout and potential to pay off the mortgage etc. The thought of paying half to Canada is making me feel sick. I am not going to do it.

ultrarunner

Too bloody right and all, and why should you have to to that? I'll have a word with a couple of Brits that have done the move from Blighty, to see what their take is and how they went about it.

I joined here as a Brit, so different case. Hang in there Guv'nor and do what is right for the family

YJMalmsteen

Awesome mate! Actually i am practically in eh same boat - i am only Canadian because my Dad was but been in the UK all my natural. Thought it would be a good opportunity to benefit from a move to the big country.

Ta!

JonboyE

This is not correct. Under the UK/Canada tax treaty pensions are only taxed in the country where the pensioner is tax-resident. Once you have moved to Canada you apply to the have the pension paid gross. In the meantime you get a credit for UK taxes paid against Canadian taxes owing so you don't pay tax twice.

Tax-wise, the best plan.

Aviator

Understand your feeling, but it is not a choice how and where you pay taxes. This is why you need to consult an accountant, to be sure you plan accordingly and fully understand your obligations. Just saying you are not going to pay it won't wash with CRA and could end up costing you dearly down the road if you are wrong. As a taxpayer CRA don't have to prove you owe, you have to prove you don't.

Not sure the gratuity is what keeps many in the military, was not for me and others I served with, don't think we even talked about it. A lot of wardroom banter went on, but not how much we were going to come out with. I was out before I moved to Canada, so was not an issue for me.

As JonboyE states, you are not double taxed, but when a tax resident of Canada, if you do pay any UK tax, you report this on your Canadian tax return and it is deducted from tax owed. You do however have to report your UK income (pensions as well) on your Canadian tax return. If Canadian tax is higher, you pay the difference to CRA. You apply to have your pension paid gross once you move to Canada and are just taxed in Canada on it.

Also be aware you have to report foreign assets of over $100k if you have not brought everything with you. This includes any savings and investments held overseas. Any currency gains after becoming a tax resident are also reportable and taxable.

Remember the 7 P's, this will help you.

YJMalmsteen

Thanks guys,

Firstly I am not saying that I will not pay my tax in a 'tax evasion attempt' manner just that I want to not pay over 100k on something I have earned over years of military service. I deserve this money and will need to do whatever I can to avoid paying, which in my instance means staying with my family in UK until I have the dosh.

As for staying in the military for the pension, it is the only reason that my peers stay in the Army (I presume you were RN as you metioned Wardroom) after a certain amount of time. We often talk of the Pension Trap, whereby many stay for their 16 years (officers) or 22 years (ORs) just to qualify for pension and gratuity.

So in conclusion, it is my choice where I pay taxes and I will stay above board to ensure that I keep all of my gratuity.

Jim Out!

Aviator

Good luck, as you say the choice is yours to make right now and I would do the same, stay in blighty, get the cash and make the move. No sense giving the tax collectors more than you have to.

Not sure the Navy is the Navy I left behind
http://www.bbc.co.uk/news/uk-15120821

Hope it works out for you, but do get professional advice to preserve what you worked for.

YJMalmsteen

Thanks a lot mate.

btw - are you flying in Canada? I would like to get a PPL on resettlement next year. Any advice?