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Double Taxation - Canada & UK

Double Taxation - Canada & UK

Old May 8th 2022, 5:44 pm
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Default Double Taxation - Canada & UK

I know this has been touched on in other threads but is there anyone here who has received (or has experience of) UK pension(s), paying UK Tax and reporting this on their Canadian tax return so as to avoid being taxed twice and then switching it so that the UK income is paid without tax but subsequently paying Canadian tax?

I'm just curious as too how the net result compares.

I mean, let's say that after the personal allowance your UK tax deduction amounted to $1000 for the year, would CRA assess you for tax as usual and then reduce your assessment for tax by $1000 (in which case it makes no difference) or would they do something like treat your income as already having paid tax and ignore it. In which case you might gain from paying tax in the country with the higher personal allowance or lower tax rate.

Logic or, perhaps, fairness might dictate that such a choice does not rest with the individual and that the decision rests with the tax authorities but I think we've heard about people ordinarily resident in one country for several years while claiming to be a resident of not one but two other countries, and having a tax arrangement beneficial to them, to suggest it's not necessarily so simple.
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Old May 8th 2022, 6:10 pm
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Default Re: Double Taxation - Canada & UK

This thread may help - UK state pension for Brit Expats living in Canada
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Old May 8th 2022, 6:34 pm
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Default Re: Double Taxation - Canada & UK

Originally Posted by btar View Post
Thanks but it won't. Not so far, anyway. It was that thread that reminded me to ask the question. That was one of the other threads I meant that touch on it but without anything remotely specific to whether one is better than the other.
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Old May 8th 2022, 6:43 pm
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Default Re: Double Taxation - Canada & UK

Too many threads spoil the ...

I thought this might be helpful:
Quote:
Originally Posted by pmak View Post
Thank you for the reply. Do I pay tax on the Canada state pension in UK? Do I pay tax on the UK state pension in Canada? Will the UK state pension taxable in Canada? I know that the Canada pension is taxable as income in Canada. How does it work? I confuse.
I only pay tax in Canada. I filled out a form that Canada tax people signed to confirm that i am a tax resident of Canada and then i forwarded that to the HMRC. Ill see if I can find the link

Found it https://assets.publishing.service.go.../Canada-DT.pdf

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Old May 8th 2022, 7:36 pm
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Default Re: Double Taxation - Canada & UK

Originally Posted by btar View Post
Too many threads spoil the ...
Good point but...

That's certainly possible. But the other thread has a heading about the Pension and while it mentions the possibility of tax in both UK and Canada that reference is more about how to go about only paying tax for one country. It's also drawn responses about paying voluntary contributions so as to top up an existing pension.

That's a perfectly reasonable additional point to throw into a thread about pensions, while maximising net income from existing pension isn't quite so relevant.

There have been threads on pensions and tax previously but I have never seen one about the specifics of how one option compares to the other. I'm guessing that one choice may be more beneficial than the other otherwise why fuss about it.

I did consider raising the question in that thread but piggybacking is frowned upon. Also, considering the thread's title and numerous other threads about pensions I decided that many would just see the thread title and think - look another one that will get onto buying additional years and then the inevitable comments about how it will be frozen in Canada.

Not happened yet but you can bet it will.
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Old May 9th 2022, 1:47 pm
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Default Re: Double Taxation - Canada & UK

It should make no difference. The qualifier to that would be if the tax paid in the UK was higher than the total tax paid in Canada, then it would be better to have it paid tax free in the UK, but paid solely in Canada. However, which option will be available to you will depend upon the rules. For example, with a Canadian RRSP, withholding tax of 25% is withheld regardless and, while this could be used to reduce income tax paid in the UK, it must be paid in Canada (let's say if someone had retired to the UK).
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Old May 9th 2022, 5:30 pm
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Default Re: Double Taxation - Canada & UK

Originally Posted by Almost Canadian View Post
It should make no difference. The qualifier to that would be if the tax paid in the UK was higher than the total tax paid in Canada, then it would be better to have it paid tax free in the UK, but paid solely in Canada.
Or, indeed, the other way around.

Just as a practical example if I assume a combination of UK state Pension and Superan totalling £13120.00pa gross, UK tax would be a mere £108.20 ($173)leaving £13011.80.

If that was tax free in the UK as a non resident, the tax in Canada, after conversions to $ would be $1329. That looks quite a bit more.

Now if CRA said "we would normally take $1329 but as you've had $173 deducted by the UK we'll only take $1156" then it would make no difference.

I rather suspect the reality is that it's not so straightforward just as, say, Pension Splitting will sometimes be beneficial and other times make no overall difference for a couple.

In the absence of someone who has seen both alternatives, maybe the best thing is to do a couple of dummy returns, one as if UK tax has been deducted and one not.

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Old May 9th 2022, 7:30 pm
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Default Re: Double Taxation - Canada & UK

Originally Posted by BristolUK View Post
Or, indeed, the other way around.

Just as a practical example if I assume a combination of UK state Pension and Superan totalling £13120.00pa gross, UK tax would be a mere £108.20 ($173)leaving £13011.80.

If that was tax free in the UK as a non resident, the tax in Canada, after conversions to $ would be $1329. That looks quite a bit more.

Now if CRA said "we would normally take $1329 but as you've had $173 deducted by the UK we'll only take $1156" then it would make no difference.

I rather suspect the reality is that it's not so straightforward just as, say, Pension Splitting will sometimes be beneficial and other times make no overall difference for a couple.

In the absence of someone who has seen both alternatives, maybe the best thing is to do a couple of dummy returns, one as if UK tax has been deducted and one not.
That is exactly how it happens and, irrespective of whether you have, or haven't, paid tax on it in the UK, the gross amount would be added to your income here and you would pay the required amount of tax on your total income, minus any tax paid in the UK.

I have two military pensions. Both are tax free in the UK but both have to be added to my income here and taxed at my marginally rate.

In your case, it only makes a difference if the tax payable in the UK is more than the total tax payable in Canada (you would lose the additional amount payable in the UK) so, unless this happens, you are always better off to have zero tax payable in the UK, and to pay all your tax in Canada, looked at purely from a tax perspective.
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Old May 10th 2022, 12:18 am
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Default Re: Double Taxation - Canada & UK

Originally Posted by Almost Canadian View Post
That is exactly how it happens and, irrespective of whether you have, or haven't, paid tax on it in the UK, the gross amount would be added to your income here and you would pay the required amount of tax on your total income, minus any tax paid in the UK.

I have two military pensions. Both are tax free in the UK but both have to be added to my income here and taxed at my marginally rate.

In your case, it only makes a difference if the tax payable in the UK is more than the total tax payable in Canada (you would lose the additional amount payable in the UK) so, unless this happens, you are always better off to have zero tax payable in the UK, and to pay all your tax in Canada, looked at purely from a tax perspective.
Thank you. I'm perfectly willing to believe that is what happens.
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