delsol79

Oh what joy - my first tax return as a Canadian resident - now I wish I had kept many more receipts than I seem to have in front of me! OK so two basic questions linked to first return as a resident that i was hoping someone would have first hand experience of.

I started doing an online return last night (just a test) and after entering my T4 it stated I was due quite a nice rebate. However it then asked if I had any earnings earned abroad/foreign income in 2011. If I enter my UK earnings and tax paid in this section for January - March then my lovely rebate basically disappears. Would I be right in thinking you only have to declare earnings (inc. foreign earnings) in 2011 AFTER becoming a resident? I became resident on the 16th April and only received one UK pay check after this date but it was for work carried out before landing in Canada.

Secondly - I rent a house out in the UK and make a very small profit from it, like 40 quid a month after all management fees etc. I have completed the landlord abroad form and that has all been approved. This money stays in the UK. Do I need to declare this on my Canadian return or deal with it through a UK self assessment?

Any help is much appreciated!

delsol79

OK I am normally more resourceful than this but I believe the VERY useful Tax Wiki has answered my queries to some degree:

"In the year you enter or leave Canada, you pay Canadian income tax only on the income you earn during the part of the year that you are in Canada"

OK so that is great - I do not have to declare earnings before becoming a resident. So I take it the pay check I got after landing in Canada for work completed BEFORE being a resident also does not need to be declared?

On the housing front I get:

Residents of Canada are subject to tax on their world wide income - including rental income from the UK.

You will need to complete form T776 Statement of Real Estate Rentals and file this with your tax return each year. Income and expenses should be converted into Canadian dollars on the day they are received or incurred. In practice, if there are many transactions an average rate for the year is acceptable.

However i earn so little profit on the house so do I need to do this? In fact if I offset losses from last year then I problably had no profit in 2011 but those offsets would only be recognised by UK Tax Office so bit confused!?

Aviator

You need to report all income earned in Canada and abroad since becoming a tax resident of Canada, this includes rental income overseas and any earnings. You also need to report foreign assets (not all but most) that are worth $100k or above including property and bank accounts. Missing this out can be expensive. First year rules are slightly different then successive years. All on the CRA web site.

Any costs of earning the self employed income (rentals by the sounds of it) can be deducted if you have the receipts. If your management company who looks after the rental pays all these for you, receipts from them should suffice. You have to report the rental income gross, deduct expenses (ones you can prove), at the bottom is net income/loss. Interest on money in the UK needs to be reported.

Earnings prior to becoming a tax resident are not included and payment for work done before arriving in Canada should be OK.

For your first return, get a tax preparer or accountant to do it for you to be sure you don't miss anything. I have used an accountant (except for once and that was a mistake, we used a tax preparer and they made a math error) since we arrived in Canada and it is money well spent. Saves me the hassle and I maximise my allowances.

JonboyE

Yes, that is right. Make sure the software has prorated your personal amount before spending the rebate.

Yes, you must declare this on your Canadian tax return.

This is a bit less clear cut. Generally employment income is considered as earned when you receive it, not when you did the work. So, technically, you should include the last pay cheque in your Canadian income. If you paid tax on it in the UK you will then have to claim a foreign tax credit. This is something that can turn into a major PIA if the CRA decide to question the claim for the foreign tax credit.

However, IMO the "earned when received" rule is an administrative convenience because the end of the year often does not coincide with the end of a pay period. As long as you did pay tax on this in the UK I don't think you will end up in jail if you considered this as earned before you became tax-resident here and did not include it on your Canadian tax return. Just don't tell anyone I said so.

Yes, if you make any profit you must include this. If you make a loss you will want to because a loss will reduce other tax payable. However, you can't offset rental losses incurred before you became tax-resident against profits earned after.

Remember that mortgage interest is a deductible expense. Repayment of the principal isn't.

The other form Aviator is referring to is the T1135. You don't have to file it for the year you first become tax resident. However, if your total foreign property has a cost (i.e. the value on the day you became tax-resident) of $100,000 or more you must file this for every subsequent tax year.

englishrose1

Thank you JonboyE for answering these questions. I had the same questions so I will follow your advice.

Turbo tax offer this defence service if you are called by up CRA to defend everything. Is it worth the money.

I also want to know if when I file by paper will I need to send in all the receipts in with it?

JonboyE

I have no experience but if you are filing your return as honestly as you can I don't why you need to pay extra. If you make a mistake and the CRA correct it then what is there to defend? There should be no defense against dishonesty.

I prepare very few paper returns - immigrants, emigrants and late filers only. Everything else goes by e-file. I get quite a lot of requests for further information from the CRA. This is usually for people with unusual amounts such as large medical bills or moving expenses. Foreign tax credits also often excite them.

Generally, sending copies of the receipts is all that is needed to resolve these requests. You are still going to have to dig out the receipts and send them to the CRA even if you pay extra for the defense product.

Some. You will send one copy of all T slips. Also medical expenses and charitable and political donation receipts. You will keep tuition receipts and receipts that support other income like self-employment or rental income/loss in case they ask to see them. The guide you get with the paper forms (also here http://www.cra-arc.gc.ca/E/pub/tg/50...-g-01-11e.html ) will tell you line by line which receipts should be submitted and which retained.

Cdnshaz

My husband did his first one last year and me as a returning citizen, first you have to mail in the first one to international tax centre, no email.
We had an acct do it last year and we also have a rental income in UK, you do not need to declare it the first year of filing, we should declare it this year and onward, can't honestly say we will do that as the canadian government has given us so much grief and screwed us royally, why mess them up any more....tired of their crap. Make sure you apply for all tax credits you are eligible for GST, HST, child tax benefit if you have kids, the list goes on.

Best advice get a good tax accountant and ask lots of questions.

delsol79

Thanks for the replies - very useful information and it does sound like getting someone to prepare it this year might be a good option. I just hope they get similar figures to Turbo Tax as it is showing a really healthy return!

Cdnshaz - where did you read that you do not have to declare rental income in the first year. That could make things a lot more simple. Got a link or can point me in right direction?

Cheers.

Cdnshaz

Our accountant told us that, as it is on the website, she doubled checked it...this year we are to claim it..

delsol79

The CRA web site? Will take a look.

JonboyE

Sorry, but I disagree. You have to report rental income from the moment you become tax-resident in Canada.

You don't have to file a T1135 (foreign income verification statement) in the year you become tax-resident but this does not relieve you of the requirement to report, and pay tax on, a profit from rental income.

delsol79

From what I have read tonight I fully agree. Everything points towards having to do it. If you do have a link or can get one from your accountant then I would be happy to read.

Aviator

An audit would certainly be interesting.

JonboyE

This is the link I got from my accountant http://www.cra-arc.gc.ca/tx/nnrsdnts...nwcmr-eng.html

For the part of the tax year that you were a resident of Canada for tax purposes:

You must report your world income (income from all sources, both inside and outside Canada) earned after becoming a resident of Canada for tax purposes on your Canadian tax return.

Aviator

Good job you know a good accountant eh!