Exchanging/transferring money and income tax
Apr 6th 2006, 8:25 pm
#1
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Joined: Feb 2006
Posts: 75
Exchanging/transferring money and income tax
Obviously this is a subject that matters to almost everyone moving to Canada. Yet it seems from some posts I have read that many people do not have a clear understanding of the best ways to handle transferring funds or what the tax implications are. Perhaps we can provide some clarity for those who have yet to make these decisions.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
Apr 7th 2006, 1:45 am
#2
Forum Regular
Joined: Mar 2005
Posts: 253
Re: Exchanging/transferring money and income tax
Athome,
While i do not undertand the money transfer thing, i still appreciate the time you spend in writing the message.
Thank you,
Y
While i do not undertand the money transfer thing, i still appreciate the time you spend in writing the message.
Thank you,
Y
Apr 8th 2006, 3:36 am
#3
Banned
Thread Starter
Joined: Feb 2006
Posts: 75
Re: Exchanging/transferring money and income tax
You're welcome Yasmina. Love your name. 
Apr 8th 2006, 1:57 pm
#4
Forum Regular
Joined: Jan 2006
Posts: 43
Re: Exchanging/transferring money and income tax
Originally Posted by Athome
Obviously this is a subject that matters to almost everyone moving to Canada. Yet it seems from some posts I have read that many people do not have a clear understanding of the best ways to handle transferring funds or what the tax implications are. Perhaps we can provide some clarity for those who have yet to make these decisions.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
Hello Athome.
Thanks for an excellent post. You answered or threw light on quiet a few questions before we could ask them!
Karma sent.
Bo
Apr 8th 2006, 3:21 pm
#5
Forum Regular
Joined: Oct 2005
Location: YYC - Scotland - TO maybe?
Posts: 219
Re: Exchanging/transferring money and income tax
Thanks athome
great post scotty 1972
great post scotty 1972
Apr 8th 2006, 4:03 pm
#6
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Joined: Jan 2006
Posts: 1,010
Re: Exchanging/transferring money and income tax
Originally Posted by Athome
If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. .
It's best not to evade taxes because when you are caught (the odds are you will be - eventually) anything you say gets treated as a lie (which is why Tony Blair finds the "trust me" argument so much harder after he put his name to the dodgy Iraq dossiers).
K.
Apr 8th 2006, 4:56 pm
#7
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Joined: Apr 2005
Location: Ottawa, ON
Posts: 404
Re: Exchanging/transferring money and income tax
Great and useful post.
If we bring a large amount of money from the UK are we liable to Canadian tax on it? Like an import duty?
If we bring a large amount of money from the UK are we liable to Canadian tax on it? Like an import duty?
Apr 8th 2006, 5:16 pm
#8
Forum Regular
Joined: Apr 2005
Location: Kimberley, BC
Posts: 52
Re: Exchanging/transferring money and income tax
Originally Posted by Snave
Great and useful post.
If we bring a large amount of money from the UK are we liable to Canadian tax on it? Like an import duty?
If we bring a large amount of money from the UK are we liable to Canadian tax on it? Like an import duty?
Money you bring into the country that you have earned prior to becoming a Tax Resident has already been taxed and is not subject to import duties.
Apr 8th 2006, 5:20 pm
#9
Lost in BE Cyberspace
Joined: Sep 2004
Location: Windsor, ON; Chicago, IL
Posts: 6,713
Re: Exchanging/transferring money and income tax
Originally Posted by Snave
Great and useful post.
If we bring a large amount of money from the UK are we liable to Canadian tax on it? Like an import duty?
If we bring a large amount of money from the UK are we liable to Canadian tax on it? Like an import duty?
Apr 8th 2006, 8:13 pm
#10
Forum Regular
Joined: Jan 2006
Posts: 42
Re: Exchanging/transferring money and income tax
Originally Posted by Athome
Obviously this is a subject that matters to almost everyone moving to Canada. Yet it seems from some posts I have read that many people do not have a clear understanding of the best ways to handle transferring funds or what the tax implications are. Perhaps we can provide some clarity for those who have yet to make these decisions.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
Apr 8th 2006, 9:25 pm
#11
Banned
Thread Starter
Joined: Feb 2006
Posts: 75
Re: Exchanging/transferring money and income tax
Originally Posted by harrys
An excellent article. Thanks. Of course of great interest to folk intending to move to Canada. A related question is: if your assets eg interest from bank deposits, or rental income is generated in uk, and kept in uk accounts, would it be taxed in Canada being your "world wide income"? One might need to keep it in uk to earn higher interest rates and import it into Canada at some later date, according to need. I hope this is not a dumb question. HCS
There is no problem with leaving the money in the UK to earn income in whatever way you want. It is just about declaring the income.
Apr 8th 2006, 10:05 pm
#12
BE Forum Addict
Joined: Jan 2006
Posts: 1,010
Re: Exchanging/transferring money and income tax
Originally Posted by Athome
Legally, if you are living in Canada, any income earned anywhere has to be reported to the Canadian tax people. They tax you on your world wide income. As I wrote earlier however, you would only be liable to the difference between the tax you paid on it in the UK and the tax that Canada would charge. So for example if you paid 22% on it in the UK and Canada wanted 25%, you would pay the 3% difference in Canada.
It's not just bank interest, of course, but any income (dividends, salaries, pension, rent). Dividends come with a tax credit (ie. a withholding tax) of 10% that you can offset against the Canadian tax liability.
You also have to declare the amount of foreign investment on a special form if you go over a threshold (I think the threshold is $100,000). This is to check up on you: if you report a low income but have large investments then they will start thinking "where did all the investment income go?". A house rented out counts as a "foreign investment".
Failing to fill in the form results in the usual "up to a zillion years in jail and/or a jillion dollar fine, loss of reproductive rights and death by firing squad."
K.
Apr 9th 2006, 9:58 am
#13
spring is coming yeha
Joined: Oct 2005
Location: wasaga beach ont
Posts: 494
Re: Exchanging/transferring money and income tax
Originally Posted by Athome
Obviously this is a subject that matters to almost everyone moving to Canada. Yet it seems from some posts I have read that many people do not have a clear understanding of the best ways to handle transferring funds or what the tax implications are. Perhaps we can provide some clarity for those who have yet to make these decisions.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
1. Exchange
Exchange rates are probably the most common area of misunderstanding. What has to be kept in mind that there is an exchange rate referred to as the Interbank Rate. This is the rate at which banks trade money between themselves. All other exchange rates can be compared to this rate. So, a bank may exchange money for you at 1% below the Interbank Rate. In that case they are in fact charging you 1% for handling the transaction. Yet they may also say they exchange with no fee! It’s semantics. Another bank may openly say they charge a 1% fee on exchange and at the same time be giving you an exchange rate that is 2% below the Interbank Rate. So in reality they would be charging you 3%. In fact some banks will charge fees both hidden and admitted that total 4.75%.
What this means is that you have to ignore any statements of ‘no fees’ they make and find out exactly what exchange rate they will give you relative to the Interbank rate.
The only UK financial institution that I am aware of that exchanges funds at the Interbank Rate with no hidden costs is Nationwide Building Society.
Banks have all kinds of ways of hiding these fees or telling you that someone else is charging the fees. They will tell you that when using a Debit Card at an ATM via the Visa network for example, that Visa charges 1%. True but then why does Nationwide not have to pass this 1% on their customers? They don’t but again are the only one I am aware of that doesn’t. I have seen lots of people saying that they are getting the Interbank Rate minus only the 1% Visa fee and that this is as good as it gets. It isn’t.
Bottom line, you have to find out what rate relative to the Interbank Rate you are getting.
2. Transferring funds
Generally speaking people moving to another country have two possible needs for transferring funds. Either large lump sumps (ie. For a house purchase) or monthly transfers for living expenses (ie. Monthly pensions). Again what you need to know is what rate you are getting for your funds.
With large lump sums, you obviously cannot go to an ATM and use a debit card. Your choices are to transfer through your bank or use a money market trading company, commonly referred to as FX (foreign exchange) companies.
Again your bank may charge hidden fees. A money market company will quote you a rate either for a ‘spot’ buy or for a ‘future’ buy. Most of their websites also show the current Interbank Rate. Have a look at Moneycorp.com as an example. You’ll see the Interbank Rates scrolling across the page. For a spot buy they will generally quote you a price 1% under the Interbank Rate plus a transaction fee of £15 for example. Once you have opened an account with them you simply tell them how many dollars you want to buy or how many pounds you want to sell, they quote you a rate and you agree the sale/purchase. You then pay them the pounds by cheque or electronically via a transfer from your bank account to theirs. They then transfer the funds to whatever account in whatever bank you designate. Ie. Your Canadian bank account.
For a future buy, you are gambling on the exchange rate in the future. The rate they quote for a future purchase/sale depends on how far in the future you want it. The point of buying in the future is that you fix the rate at that point in time. So if you know you will have to make your final payment on your new home in Canada 4 months from now, you may want to buy dollars at that time but fix the rate at which you will buy them. It’s a question of knowing what rate you will be getting and thus being sure you will have sufficient funds. It takes the risk out of exchange fluctuations but of course also takes away the chance of the exchange rate going in your favour. At the same time, when buying a future you only have to put a 10% deposit on the transaction. That means if you don’t have all the funds available at present (waiting or your house to sell for example) you can still fix the rate of exchange ahead of time.
For transferring small amounts, your best bet is simply to use an ATM in Canada. Suppose you have a pension, or rental, or income of some kind being paid into a UK bank monthly and you want that money in Canada for living costs. Actually transferring the money via a bank transfer or using an FX company will attract fees and that all important rate of exchange issue. If you have a Nationwide Flex account and simply withdraw the money in Canada from your account using an ATM card, you will get the funds with no transfer fees and at the full Interbank Rate. You can withdraw $500 per day if you like with no problem.
So for large one of transactions I believe an FX company is your best bet. For small amounts use ATMs and a Nationwide Flex account.
Also it is important to note the currrent interest rates being paid in both countries. Right now savings will pay a higher rate of interest in a UK account than they will in a Canadian account. Nationwide is currently paying 4.55% for example in their e-savings account and are consistently the highest. Consistency is more important over time than which e-banking account is paying the highest rate but for only a set period. Ie. The offer you .5% more but only for the first 6 months. When you are living in Canada you are not in a position to change accounts every 6 months. Consistency is what matters.
3. Income Tax
This is a tricky one. If you have savings which generate income or some other source of income in the UK, the question is whether to declare that income in the UK or in Canada. Legally if you are living in Canada and have income in another country, Canada requires you to report your world wide income and pay tax on it. Where a tax treaty exists as it does with the UK, you can declare the income, declare tax paid in the other country and are then only liable for any difference in tax. So for example if you had some income in the UK and were paying 22% tax on it there you might find that when you declared it in Canada, that you were liable for 25% tax. That would mean you would have to pay the difference of 3% in Canada.
If you declared yourself a non-taxpayer in the UK and declared all the income in Canada you would pay the full 25% in Canada (remember the numbers are just an example) but no tax in the UK.
That is the legal position. If you paid the tax in the UK and did not declare the income in Canada, then the question is would the Canadian tax office find out. It depends. If you are withdrawing the money from an ATM and not depositing it in a Canadian bank account, they PROBABLY wouldn’t. If you deposit it in a Canadian bank account and were randomly picked for a tax audit you might find them asking you to explain where the deposits in your bank account came from. Remember though that probable and possible are two different things. I’m not suggesting you do anything illegal of course but some people have been known to not declare foreign income. I guess it depends how much the difference in tax amounts to in actual dollars as to whether someone would decide to take the risk or not.
Hopefully this information will be of use to some of you who have yet to make the move and even to some of you who already have but still have choices to make. No doubt I will get some disagreement on various points. Some of it valid and some of it based on misunderstandings of either what I have written or of what actually happens. I’m sure some people will think they got a good deal from their bank when in fact they didn’t. Just remember, you can disagree with the message but there is no need to shoot the messenger.
We recently went to emigrate 2006 at sandowne park and met an HSBC rep there apparently if you have an acoount with them in the UK when you move to canada they will open an account with an HSBC branch in canada for you and transfer your sterling to the new account. This enables you to decide when to exchange all or some of the sterling to dollars thus getting the best exchange rate.
Has anyone done this? is it worthwhile doing?
PS great post athome
steve
Apr 9th 2006, 2:55 pm
#14
Forum Regular
Joined: Jan 2006
Posts: 42
Re: Exchanging/transferring money and income tax
Originally Posted by steved61
We recently went to emigrate 2006 at sandowne park and met an HSBC rep there apparently if you have an acoount with them in the UK when you move to canada they will open an account with an HSBC branch in canada for you and transfer your sterling to the new account. This enables you to decide when to exchange all or some of the sterling to dollars thus getting the best exchange rate.
Has anyone done this? is it worthwhile doing?
PS great post athome
steve
Has anyone done this? is it worthwhile doing?
PS great post athome
steve
I am doing exactly that at present. I have an HSBC account here and am in the process of opening an account in Toronto. Main purpose - to transfer a sum of money to indicate sufficient settlement funds. The a/c should be operational before I arrive. However, after completing immigration formalities and obtaining PR card, I am going to have to come back to uk after a few weeks to sell my house (a bit slow at present!!). The way indications are, I might not go back to Canada for final settlement for months yet. With a PR status, and a bank account in Canada one may be classified as Tax Resident of Canada even if one is actually living in uk. I have mentioned this on this forum before. This is the only worry I have about opening an account in Canada. This may or may not apply to you, but it is a point worth watching. My guess and hope is that by demonstrating that my canadian account is only for convenience, and with no earnings from Canada, I will escape the burden of filing tax return for Canada, particularly when I have not "really emigrated just yet". Best wishes. HCS
Apr 9th 2006, 6:19 pm
#15
Banned
Thread Starter
Joined: Feb 2006
Posts: 75
Re: Exchanging/transferring money and income tax
Originally Posted by kt0157
Just being a pedant, but interest is taxed at 20% in the UK.
It's not just bank interest, of course, but any income (dividends, salaries, pension, rent). Dividends come with a tax credit (ie. a withholding tax) of 10% that you can offset against the Canadian tax liability.
You also have to declare the amount of foreign investment on a special form if you go over a threshold (I think the threshold is $100,000). This is to check up on you: if you report a low income but have large investments then they will start thinking "where did all the investment income go?". A house rented out counts as a "foreign investment".
Failing to fill in the form results in the usual "up to a zillion years in jail and/or a jillion dollar fine, loss of reproductive rights and death by firing squad."
K.
It's not just bank interest, of course, but any income (dividends, salaries, pension, rent). Dividends come with a tax credit (ie. a withholding tax) of 10% that you can offset against the Canadian tax liability.
You also have to declare the amount of foreign investment on a special form if you go over a threshold (I think the threshold is $100,000). This is to check up on you: if you report a low income but have large investments then they will start thinking "where did all the investment income go?". A house rented out counts as a "foreign investment".
Failing to fill in the form results in the usual "up to a zillion years in jail and/or a jillion dollar fine, loss of reproductive rights and death by firing squad."
K.
There isn't a simple answer to what tax is due. It depends on many factors which I'm sure as a pendant you would realize.