Jolly Jack Tar

Holy Smokes !, This is a question I have been dying to ask about but did not know how to go about wording it incase I show just how dumb I am. Cant wait for the wife to come home and read this lot. she is the brains behind it all when the tax forms arrive in the mail box. The arrogant side of me says its my pension I earned it hands off tax man, but as somebody put it, the taxman will always get you. I did not even give it a thought about if you live out of the uk you might not get your pension index linked. There was so much info here to take in I might of missed the correct answer on that one, will have to go back and look at all the threads again. great subject troops, you never know I might make head or tail of it all yet. Cheers,

DAVIE_MAC

Hi Mate.

Yes if your still on AFP75 then you can commute to a maximum of 25% but only on the pension amount you have earned up to April 2006 as Winston said

eg I enlisted in 86 my SOS date will be aprill 08 = 22 yrs therefore I can only commute max 25% of 20yrs worth of pension earned.

Hope that makes sense...off to watch Corry back later

DAVIE_MAC

Dude quick one.

Mil pension yes is index linked

State pension (when you eventually draw it) is NOT index linked...but that is another thread.....

smiges33

thats a bit of a relief thought both where not going to be index linked.

Jolly Jack Tar

Yes another thread indeed !!!!! by the time i,m able to draw my civvy old age pension it will no longer exist because the government has given it away or lost it or spent it, either way I dont think it will be worth much. I am paying into CPP and as long as you have paid into that for at least 10 years you can draw a Canadian pension, that wont be much but with my Military pension I will be ok. Just about to file my second tax return since being here so the info on the waiting till after second tax return before claiming tax back was most helpful, in fact this whole thread has been great and hopefully going to keep lots of us out of the PooH !!! Thanx all.. oooh its nearly five oclock, i do believe "the Bar" is now open ! cheers.

agr

I'm no tax lawyer, and what I say here doesn't constitute advice, but I've had a look at the Canadian Revenue Agency's bulletin on Determination of an Individual's Residency Status, and this is my interpretation:

In the absence of dependants or property in Canada, secondary factors would be used to determine residency for tax purposes. More than one of the following would be taken as showing 'residential ties':

(a) personal property in Canada (such as furniture, clothing, automobiles and recreational vehicles),

(b) social ties with Canada (such as memberships in Canadian recreational and religious organizations),

(c) economic ties with Canada (such as employment with a Canadian employer and active involvement in a Canadian business, and Canadian bank accounts, retirement savings plans, credit cards, and securities accounts),

(d) landed immigrant status or appropriate work permits in Canada,

(e) hospitalization and medical insurance coverage from a province or territory of Canada,

(f) a driver's license from a province or territory of Canada,

(g) a vehicle registered in a province or territory of Canada,

(h) a seasonal dwelling place in Canada or a leased dwelling place referred to in ¶ 6,

(i) a Canadian passport, and

(j) memberships in Canadian unions or professional organizations.

Thus if one were to land, refrain from marrying a local or buying a house, not do any of the above except (d), and then return to the UK, I think one would stand a good chance of not becoming a resident for tax purposes. However, even if this did not work, one ought to be a 'deemed non-resident' under the UK-Canada tax treaty:

"¶ 24. An individual who is otherwise resident in Canada for purposes of the Act (whether factual or deemed -- see ¶s 4 to 23), and who, at a given time, is resident in another country for purposes of a tax treaty between Canada and that country (see ¶s 25 and 26), is deemed not to be resident in Canada at that time, pursuant to subsection 250(5) of the Act. The individual is treated as a non-resident for all purposes of the Act,[...]"

The bulletin goes on to describe the tie-breaker clauses of most tax treaties, which typically state that the country in which the closer residential ties exist is the one that collects the tax.

So it seems to me that landing, returning to UK, leaving the forces, collecting gratuity free of UK tax, then moving permanently to Canada, ought to be fine. For added safety, I would avoid establishing any ties within Canada (property, driving licence, health insurance) until after the gratuity is in the bank!

I would plan to seek an advance ruling for peace of mind:

"¶ 28. Where certainty is required in respect of the tax consequences of the proposed departure from or arrival in Canada of a particular individual taxpayer, the Income Tax Rulings Directorate may, in appropriate circumstances, be prepared to issue a binding advance income tax ruling with respect to the residency status of that taxpayer. Generally, such a ruling will only be available where all of the facts of the situation can be ascertained in advance of the proposed departure from or arrival in Canada of the taxpayer. For detailed information regarding applying for an advance income tax ruling, please see the current version of Information Circular IC 70-6, Advance Income Tax Rulings, which can be found on the CCRA website (www.ccra.gc.ca)"

Again, this is not tax advice and you must satisfy yourself as to your particular circumstances.

agr

Winston Green

Hi Kazchug

If your friend is still in and has done 30 years he might consider changing over to the new system. If he is intending to do the full time he might be considerably better off on the new system. Yes he cannot comute any but he will get a second lum sum. Just a thought although is he is intending to emmigrate judging but this thread a second lum sum might be more trouble than it is worth!!

winston

DAVIE_MAC

Good point dude looks like anyone on the new system could possibly get hammered twice.

kazchug

http://www.mod.uk/DefenceInternet/Ab...nsions/AFPS75/

I think its fair to say that the government will never change pension rights to benefit the recipients. When I was in the RN the goal posts moved on a anual basis with no-one ever quite qualifying for the previous scheme...Sea pay springs to mind. I remain a sceptic but thats me. There is no doubt that my pension wil be taxed in Canada. I reckon the extra tax burden is minimal and im sure the amount saved on other commodities wil still see me in pocket. I do feel for those who have this issue with gratuity payements. I find it hard to believe that the Canadian tax man can tax a payement that remains tax free in the Country of origin. Having said that I suppose you have to take that into account if you decide to go.

LiffyB

Having trawled through all of the replies - I think that we may have to rethink our dates for activating our PR visa. We are pursuing the CI route with Nova Scotia having been out there on a 3 year posting with the military, our application could be processed as quickly as 6 months (taking us up to September). My OH's terminal date is the begining of November 09, with outstanding leave and other entitlements we were hoping to move over in July of 09. From what I have been reading here am I correct in thinking that:

1. A soon as we activate our PR's (even though we will still be living in the UK) will we then have to pay UK & Canadian tax on all our wages.
2. We will have to pay Canadian tax on his graturity if his PR is activated before he gets it.
3. Can he get his graturity then activate his PR (hence hopefully paying no taxt on it?)

I hope that some of you can answer these questions - we were hoping to activate the visa's asap just incase rules governing the CI are changed.

Looking forward to hearing your answers on this one!

Liffy

Winston Green

Hi Liffy

You have to pay tax on the wages if you are resident in Canada. If you are in the UK now and move to Canada during your OH terminal leave/GRT you will be tax resident in Canada the day you land and will have to fill in a Canadian tax return and declare all overseas income. (You can claim some of the tax back from HM revenue after two years)

This overseas income will include your OH gratuity. If you go to NS for a holiday activate your visa come back to the UK and wait till the gratuity is paid you are not tax resident in Canada and the gratuity is tax free.(provided you didn’t buy a house, car or other item to indicate residency in Canada)

You can then move to Canada and start new life.
I know this is not what you wanted to hear as it is the same for me. I intended to leave military and use GRT/Terminal leave to set up life in NS and then uses gratuity to purchase house.

Winston

LiffyB

Hi Winston

Thanks for that! so what I am understanding from your reply is that once we have activated our PR visa we can still go backwards and forwards for holidays but as we are still living in the UK we won't be taxed on our incomes until we live there permanently, and as long as OH is in UK when he gets his graturity he won't be liable for tax in Canada. I can see a long summer holiday in NS coming up and then a return to the UK purely for tax purposes.

We were hoping to buy a house sooner rather than later - would it be possible to just put the house in my name seeing I don't earn as much and won't be getting a graturity? We are concerned that house prices will stagnate or drop here but rise in NS!


Liffy

JonboyE

Hi Liffy

You need to tread carefully here. I broadly agree with Winston's analysis. If you want to ensure your OH receives his gratuity tax free then you have to be sure he is not tax resident in Canada on the day he receives it.

As stated above, activating PR status does not necessarily make a person tax-resident in Canada, but it is a very persuasive factor. PR status and any other factor could. For example, the CRA state that anyone who has PR status and enrolls in a provincial Medicare plan will be considered as tax resident, regardless of any other factors.

I am not sure a house purchase in your name only will work. The CRA are not interested in whose name is on the title, it is the fact of having a home "available for use" they will consider. And, of course, if you become tax resident in Canada this is a very persuasive factor in deciding your OH is also tax resident here.

If you are worried about rising house prices it might be possible to buy a rental property and have tenants so it is clear that it is not available for your, or your OH's use.

The easiest way is to come over here for a holiday, activate your PR status, then go back to the UK and stay there until the day after your OH receives his gratuity.

LiffyB

Hi JonboyE

Yes it looks like we will have to to wait until he leaves the Mob unfortunately! We quite like the sound of buying a house to rent out - this would seem like a good option - but then we would have to declare the rent earned from it somewhere surely? Just as long as we can go out for holidays and not have to pay tax in both countries! Not using this as a tax dodge but I do think that after all he's put his neck on the line for I grudge him having to pay tax on it!

I might start a new thread and see what comes up on the rental option!

Liffy

JonboyE

There are some "interesting" rules about witholding tax for foreign landlords in Canada. There is a discussion in the wiki here. See section 4.1.

You declare this income and pay tax on it in the UK until you leave permanently to move to Canada. You will get credit from HMRC for any withholding tax paid in Canada.