debbiem

Quite right Jock, it isn't.
If you move over to Canada in the summer and buy a house/ register for schools, open Bank accounts etc etc, even if you are being paid in the Uk and still serving, it won't matter. Poppoing back to get the cash for a week doesn't cut it. Particularly if you or your wife get offered a fab job to start before your official exit date, and your gratuity being paid. (ignoring for a mo the rules about working prior to exiting the service).

I assume if you move the kids and family in the summer, you aren't going to be keeping a house in your name in the uk until your gratuity is paid etc etc?

It's the you-going-over-and-getting-a-life-set-up prior to gratuity being paid, that is the problem. If you have a home and residential ties in Canada (ie wife, family, dog whatever) the fact that you are still brit mil and being paid in the uk is not relevant.

So you need to only have a home and family in the UK. (note difference between house and home - comments re income property and non-res status above)

Have you already got PR? It becomes slightly muddier if you have already landed - if you can save the landing bit until after your gratuity, then that's great timing, even if you pop over on holiday in the summer to buy a house and rent it out for 6 mos through an agent. Don't know what your immigration status is though?

I think most of the other chat was on ex-mil threads rather than specific gratuity/ pension threads, but yeah, it's been knocking around for years...

debbiem

That's interesting - essentially you have a choice, you can commute some of your pension and get a larger gratuity, or take smaller gratuity and get larger pension, so at least some of it is more pension linked than 'employment income' linked I would say...

Would be v interested in the number crunching!

kazbob

We have also owned a house in Canada since 2008 and have been renting it out to non-family/friends - we have filed a non-resident tax return every year no problems at all.

We have also taken legal advice with regards to our situation and have been told that owning a house in Canada but not living in it and still living in the UK does not constitute us becoming resident taxpayers in Canada, therefore when we receive the gratuity, as long as we are still living in the UK and UK taxpayers, then it will not be taxed.

Karen

JonboyE

There are lots of factors that make up an individuals tax position, but as an example take a couple in BC in 2011 that are below 65 (so don't get the pension amount).

They get $100,000 and have no other income in the year.

One person shows it all as employment income - tax to pay is $22,778. Couple share it as pension income - tax to pay $17,696.

I.e. $5,000 less tax to pay.

debbiem

know any tax specialists around the calgary area that might be willing to take on a tricky one?

CanuckJock

Interesting replies and certainly food for thought. A briefest of glances at the UK-Canada tax treaty indicates that it was set up to avoid double taxation and prevent tax abuse. It doesn't say it wants to fleece the unwary, but suppose that is implicit in most government tax dealings.

That said, if I have moved to Canada (I'm a citizen) then presumably if tax residency starts immediately then I shouldn't have UK income tax deducted from my salary? Rather, Canadian income tax should apply from landing?

I sounds like Plan A may have to be redrawn.

JonboyE

Yes, and is quite effective in doing so.

No, if it is UK sourced employment income it is taxable in the UK. This is in the tax treaty too. If you are tax-resident in Canada you are also taxed on it here. However, you get a credit for the tax paid in the UK against Canadian taxes owing against the same income. The net affect is that you do not pay tax twice.

We have talked about this issue a lot, but there is something I should add as well. Tax is mostly about law. In the UK there are several acts of parliament. In Canada it is the Income Tax Act. These laws specify what income is taxable and what expenses are deductible. The wording can be complicated at times but the essence is simple: if it says in the ITA income is taxable, it is taxable, and if you omit it from your return you are breaking the law. If you are found out you will be punished.

However, tax-residency is not a question of laws, it is an interpretation of facts. Sometimes the interpretation of facts is obvious. If you and you family move from the UK to live in Canada on an indefinite basis on July 1 then you become tax resident on July 1. If you carry on living a normal life in the UK until your gratuity is paid and in your bank, then move with your family to Canada, the gratuity is safe from Canadian taxation.

The set of facts here are less certain. The family buys a home in Canada, wife and children move there in summer, husband joins in the winter after gratuity is paid. Does the husband become tax-resident in the summer at the same time as the rest of the family? My interpretation (and one that seems to be in accord with the advice other posters have received) is quite likely yes. The only option to be sure the gratuity is not subject to Canadian tax is for the family to stay in the UK until it is received. However, if the husband's life remained centered in the UK, it is conceivable that he remains tax-resident in the UK even after the family has moved to Canada. If the husband asserts on his tax return that he did not become tax--resident in Canada until after his gratuity is paid he is making an assertion based on his interpretation of the facts. He is not breaking the law.

Of course, if the CRA decide to take a look he will have to defend that assertion. The CRA have the power to determine someone's tax residency and once they have made that determination you have to live with it unless you have the energy and money to fight it through the courts. It is too late for tax planning at this stage. If they make the determination they will charge the tax owing plus interest as a minimum. Depending upon their view of the innocence of your "mistake" they can charge a range of penalties. Ultimately they can prosecute but that is extremely unlikely.

However, there is also the chance the CRA will accept the return as filed.

To recap: if you really do not want to pay tax on your gratuity stay, with your family, in the UK until it is received. If you are already living in Canada then all you can do is grin and bear it. If you are in the middle of a hybrid move then it is down to your conscience and willingness to take on risk.

CanuckJock

Jonboy,

Many thanks for your last post, you articulated as comprehensive a reply as I could hope for, many thanks. The main point that I, and any others serving in HMF considering emigrating, should take away is simply to think and plan, and not assume anything.

Is there a wiki on this topic? If not, perhaps we could all rehash this subject, same questions, same opinions, say about 12 months from now?

Cheers.

agr

JonboyE that was a very elegant piece. Could you add the CRA links and make it a wiki article? The intro might look like this:

Treatment of Tax-Free (in UK) Pension Gratuities
Emigration is often coincident with other significant life-changes, such as leaving long-term employment, which have financial and tax implications. A good example is leaving the UK Armed Forces, typically around the age of 40: the forces' pension scheme provides a tax-free (in UK) gratuity within a few weeks of discharge. The question that often arises is "if I am already in Canada by the time I receive my gratuity, will I pay Canadian tax on it?".

This would lead nicely in to your piece Jonboy.

JonboyE

Try this http://britishexpats.com/wiki/Tax-Free_Lump_Sum

mardyarse

round of applause HOORAH!

agr

Great job! Thanks Jonboy. I think that's a link that will see some use.