byreboy

Has anyone with a pension from their military service recently moved to Canada ? What did they do with their pension ? I am currently half way through a two year diploma in Nova Scotia, but have my pension paid to my UK bank. As such I pay tax at source in the UK. I have no job in Canada and my UK pension is my only source of income. Has anyone transferred their pension to Canada, if so will this have an effect on any index linking of the pension when you reach age 55 ? Any info appreciated.
many thanks
Byreboy

Almost Canadian

I just get mine paid into my UK bank account and then transfer it via online banking as and when I need it. I can't see why anyone would want to "transfer" it to Canada - the only reason I guess would be to avoid the ups and downs of the exchange rate.

byreboy

Thanks for the reply, I am doing the same as you. As such I pay UK income tax at source and wondered if this was the most tax efficient way to proceed. I did hear from another former serviceman that once you had informed the pension provider that you were resident abroad your pension would no longer be indexed linked (and hence no raise when you are 55).

Beastie

Hi there,

not sure about military pensions specifically but I think I am right in stating that once in Canada you need to declare it as 'worldwide income' and that as such it becomes taxable in Canada. The pension is only taxed once because of the Double Taxation Treaty between the UK and Canada but the tax is taken by the Canadian Taxman.

Not completely sure of the process but I think that once you move, you have to inform the Inland Revenue that your permanent residence is now Canada and complete a form. Once this is done the pension provider pays your pension to you without deducting tax and you declare it on your Canadian Tax Return at which point you pay the appropriate amount of tax due under Canadian Tax Regulations.

I am sure that someone will either correct me, confirm what I have said or expand further on my explanation. I receive a Civil Service pension and this is what I have been advised will apply to me when/if we move.

Regards,

John

Harrased_Dad

The following post does not constitute financial advice. Always get advice on financial matters from a professional.

Can you tell I was in the AGC?

Okay - here's the gen.

You must declare your income in Canada, and it will be taxed by the Canadian Govt. Not to do so is tax evasion. However, since there is a bilateral agreement with the UK, you can get tax relief from HMRT.

From Here: http://www.hmrc.gov.uk/cnr/faq4.htm

Also see page 7 of http://www.hmrc.gov.uk/cnr/dtdigest.pdf where Government Pensions paid to pensioners in Canada are stated to receive full tax relief.

And here is the form you use to claim tax relief on your pension:

http://www.hmrc.gov.uk/cnr/canada-individual.pdf

Lastly, I believe, but do not have the source to hand, that you can have your Armed Forces pension paid in to an overseas bank account at the business rate of the day without charges - if true this would likely be the cheapest way to get Canadian Dollars. The pension will still be taxed at source in the UK unless you apply for tax relief.

Harrased_Dad

Mech

With regards to dual taxation.

I receive a military pension paid into a UK acount. It has to be declared as worldwide income on your annual Canadian tax return and as such you will pay tax in Canada on this income. Due to a dual tax treaty with the UK you can claim back the tax paid on the pension in the UK but my experience is, that this can only be done when you have filed 2 tax returns to Revenue Canada.

The Inland revenue form required is FD3 and is available on the internet. It has to be sent to Revenue Canada for confirmation of residency status and is then sent to the UK.

Hope this info helps to answer the taxation part of your question.

KRoss

We will be in a similar position as my husband will have a police pension. Am I reading this correctly - for 2 years you are taxed both in the uk and Canada?

Mech

This is my experience. It has actually been more than 2 years as it takes time for the Inland Revenue to resolve the UK tax issue once the paper work is received. You do get all the UK tax refunded from the date of your residency in Canada.

Robbie500

In your question you don't actually say whether you have residency or not?

ex_REME

Hi Byreboy and other ex military heading Canada way,

I've just been to the Financial Aspects of Resettlement (FAR) brief last week and asked this exact question of the Forces Pension Society guy and the Independent Financial Adviser who followed him. (We're Canada bound in August this year). Both of them had come across this issue many times before.

Their advice was that you/we cannot "transfer" the military pension to Canada, it always has to be paid by Paymaster 1864 (I think) in Crawley. You can either have it paid into a UK bank account and do the currency transfer yourself or have it exchanged by the Paymaster into Canadian Dollars and paid directly into a Canadian Bank each month. The Paymaster uses a commercial org to do that, so I was told the exchange rate is better than the tourist rate (but obviously will vary each month) and the cost is low (£5 ish I think per month, but I've left my notes at work and am on leave this week so can't check them.)

Tax - good point, little tricker. The double taxation treaty with Canada means that it will not be taxed twice (no 2 year wait heard of, not sure why that is mentioned, although more later). As the military pension is a "Government" pension, the general rule for the UK is that it is taxed in the source country ie UK. On your Canadian tax return you add in the amount you are paid after UK tax deducted (use the Canadian $ equivalent) then deduct the same amount further down the page, listing the UK/Canada Tax Treaty as the reason for the deduction. You should then not be taxed in Canada on that amount.

Do you get both UK and Canadian Personal Allowances? Here's the bit I'm crossing my fingers for. Having your pension taxed in the UK means you get the full UK personal allowance, then are taxed at the 10% and 22% tax rates (for this year anyway). I can then hopefully use my full Canadian personal allowance against my Canadian income, thus reducing my overall tax bill.

I believe from the FAR brief that it is possible to have your UK military pension paid gross (ie before UK income tax deduction) when you are non resident for tax purposes in the UK. You would then not be eligible to claim the UK Personal Allowance and would have to add the full amount to your Canadian income on your Canadian tax return, probably increasing the total amount of tax paid. It is possible that this cannot be done on your FIRST Canadian tax return, thus the point made about having to wait two years? During the first year you should pay UK income tax only. I also think that this comment on the 2 year wait may be getting confused with electronic income tax filing in Canada. I believe you cannot file your first tax return electronically. Not sure - can anyone else comment? I may be way off here, as I've not done this yet. It might also be to do with being non resident in the UK so the UK Government will not let you have your pension payed gross??

Hope that makes sense. Would love to hear from any UK ex military who are already doing this. Double personal allowance ... am I off with the little people??? - Tell us quietly as I don't want the system to change!!!

Arte et Marte

Almost Canadian

Unless you think that you are going to be earning less than the Canadian Personal Allowance with your Canadian income, this is irrelevant as whateve you "earn" via your pension will be added onto your earnings in Canada and will be taxed at whatever rate is appropriate

brit_in_fizroy

The Tax treaty with UK requires your pension to be taxed in the country of residence. Contact the Paymaster in Crawley, they are very helpfull and can arrange your pension to be payed direct to a Canadian bank - comes in around the 27th of each month. I got the forms from the Paymaster, filled them in and got them signed by the Tax office here. Sent them off and got all the tax back that I had payed in UK. I wouldn't advise playing with the taxman, he will get ya.

ex_REME

Hi Almost

I plan that my pension will always be taxed in the UK, so under the Taxation Treaty I will not pay any Canadian tax on it. Is this the way you see the Taxation Treaty?

Say I earn £12,000 a year in Pension, take off the UK personal allowance of approx £5,000, then I'm taxed on the remaining £7,000 at 20% (from Apr 2008) makes £1,400 in tax. I declare £12,000 on my Canadian tax return, then deduct it under the tax treaty, so pay no Canadian tax on it.

If I opt to have the pension tax free from the UK I'll escape UK tax but I'll pay Canadian tax at my highest (think they call that "marginal") rate which I expect to be about 38% and on all of the £12,000. That makes about £4,600 ie lots more than when I declare the pension in UK.

Does that add up to you?? There must be some smart brains out there that can see the problem with my simple sums!!

Ex

ex_REME

Hi brit

My understanding of the Tax Treaty is that you are not taxed twice on the same income, not that you need to declare income where you are resident. If you earn and declare in UK you do not pay Canadian tax on it. For those Canadians earning a pension in Canada but living in UK, they can pay tax in Canada and not in the UK.

I was told at the FAR brief that your pension payment date is set by the date your first pension payment is made. Say you are discharged on 5th of the month, your pension should be paid within 10 days of leaving, let's say 11 of the month. Then your pension will always be paid on the 11th of the month.

Tax evasion remains illegal (wouldn't dream of it!!) but tax avoidance is a favourite past-time!!

Ex

Souvenir

Taxation, particularly the double-taxation treaty, appears to be a subject of much confusion. Maybe we need a Wiki article on it.

I live in Canada. I am resident and domiciled in Canada. I file my tax return in Canada. My tax return reports my worldwide income. None of that income arises in Canada. Some of my income is paid to me gross. Some (from a trust fund) has had tax deducted in the UK before I see it.

When I file my Canadian tax return, I declare my total gross income. I also declare what tax has been deducted in the UK. That is knocked off my tax hit here.

You don't get done over twice, unless you fail to estabish where you are resident for tax purposes.