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-   -   curious tax question (https://britishexpats.com/forum/canada-56/curious-tax-question-609818/)

snowshoveller May 18th 2009 12:39 pm

curious tax question
 
I wonder if anyone can help with this:

I may be returning to the UK to work for a year, in july. this means that I will have taxable income for canada for 6 months, and overseas income for 6 months.

With regard the uk I will be tax resident there for 9 months of the tax year.

so where should i be paying tax? I am essentially self employed and so dont do PAYE. although I could do this in the UK.

there is a possibility that I will not return, but at this point the plan is to return to canada.

Any tax tips fellas?

ESarge May 18th 2009 12:54 pm

Re: curious tax question
 
Hire accountants - one for each country.

It's an almighty pain to try and understand. I recently moved to Vancouver from NZ, have a house in NZ still and I still don't completely understand the tax situation.

It's complex stuff so get experts.

If you really want to work it out then you need to check the definition of 'tax resident' in each country. Canada's definition is quite broad - it's based on enduring ties or some such so even though you're out of the country you'll probably still pay tax back here. I have no idea about UK tax.

JonboyE May 18th 2009 4:13 pm

Re: curious tax question
 

Originally Posted by snowshoveller (Post 7581906)
I wonder if anyone can help with this:

I may be returning to the UK to work for a year, in july. this means that I will have taxable income for canada for 6 months, and overseas income for 6 months.

With regard the uk I will be tax resident there for 9 months of the tax year.

so where should i be paying tax? I am essentially self employed and so dont do PAYE. although I could do this in the UK.

there is a possibility that I will not return, but at this point the plan is to return to canada.

Any tax tips fellas?

The tax treaty says that you can't be resident in both countries for tax purposes.

Essentially, you are tax resident where your home and family is. If you are currently tax resident in Canada then you will remain so until you permanently give up your residential ties here. (I.e. move your permanent home back to the UK.)

Whether or not you will have to pay tax in the UK will depend on the nature of your income, and if you have a permanent establishment there. Regardless, you need to declare all your income in your Canadian return. If you have paid any income tax in the UK you can effectively deduct this from Canadian income tax owing.

snowshoveller May 18th 2009 4:38 pm

Re: curious tax question
 

Originally Posted by JonboyE (Post 7582417)
The tax treaty says that you can't be resident in both countries for tax purposes.

Essentially, you are tax resident where your home and family is. If you are currently tax resident in Canada then you will remain so until you permanently give up your residential ties here. (I.e. move your permanent home back to the UK.)

Whether or not you will have to pay tax in the UK will depend on the nature of your income, and if you have a permanent establishment there. Regardless, you need to declare all your income in your Canadian return. If you have paid any income tax in the UK you can effectively deduct this from Canadian income tax owing.

cheers jon, this is sounding complicated,

We will not have a residence in Canada whilst in the UK, so essentially we are moving permanent home to uk for a year. so do you think I should be doing an end of term account in canada for the 1st 6 months of the year and then shifting tax residence for the rest of the year to uk. We probably wont return to Ca for more than a year.

I think I'll have to speak to my accountant!!

woodmanbg May 18th 2009 5:21 pm

Re: curious tax question
 

Originally Posted by JonboyE (Post 7582417)
The tax treaty says that you can't be resident in both countries for tax purposes.

Essentially, you are tax resident where your home and family is. If you are currently tax resident in Canada then you will remain so until you permanently give up your residential ties here. (I.e. move your permanent home back to the UK.)

Whether or not you will have to pay tax in the UK will depend on the nature of your income, and if you have a permanent establishment there. Regardless, you need to declare all your income in your Canadian return. If you have paid any income tax in the UK you can effectively deduct this from Canadian income tax owing.

We have been resident in Canada now for 18 months and we have had no end of problems with the UK tax office because they do not understand the Tax Treaty! They keep insisting on taxing us on stuff we are declaring here in Canada and we have to keep proving to them that we are resident here and it is just an absolute bl.....y nightmare.

JonboyE May 18th 2009 6:14 pm

Re: curious tax question
 

Originally Posted by snowshoveller (Post 7582492)
cheers jon, this is sounding complicated,

We will not have a residence in Canada whilst in the UK, so essentially we are moving permanent home to uk for a year. so do you think I should be doing an end of term account in canada for the 1st 6 months of the year and then shifting tax residence for the rest of the year to uk. We probably wont return to Ca for more than a year.

I think I'll have to speak to my accountant!!

Because you intend to return to Canada in the future you remain tax resident here (a factual tax resident). To lose that status you have to sever your residential ties with Canada, which you are not doing.

However, if you live and work in the UK for more than 183 days (I think this is the right time - HMRC's webite is not playing nicely today) you will become tax resident in the UK.

Because you cannot be a tax resident in both countries your status in Canada becomes "deemed non resident". I.e. you are still tax resident, but for the purposes of making the tax treaty work you are treated as though you are not. During this time you pay your taxes to the UK government, all Canada will do is collect withholding tax on any Canadian sourced income.

If you are self-employed it will be a good idea to work with your accountant.

JonboyE May 18th 2009 6:18 pm

Re: curious tax question
 

Originally Posted by woodmanbg (Post 7582603)
We have been resident in Canada now for 18 months and we have had no end of problems with the UK tax office because they do not understand the Tax Treaty! They keep insisting on taxing us on stuff we are declaring here in Canada and we have to keep proving to them that we are resident here and it is just an absolute bl.....y nightmare.

Difficult to comment without knowing all your circumstances, but it is quite common to come across people at the lower levels of the CRA who don't fully understand international tax issues, I assume the same is true of HMRC.

Don't forget that HMRC are entitled to withhold tax on certain UK sourced income such as interest, rental income and annuities. If they do you can deduct the UK tax they withhold from your Canadian income tax payable.


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