jugapper

Can anyone please advise on this or recommend a financial advisor or similar who can help...

We want to know that if we land as PR then return to the UK to continue working for approx another 18 months before moving over permanently, then if my husband decides to take his pension and receive his 'tax free' lump sum payment before we finally move, will he have to pay tax on it as he has already activated his PR status? Or will it still be 'tax free' as he was still a resident in the UK when he received it?

Have done a search but can't find anything on this particular question. Will be grateful for any advice if anyone knows the answer.. We don't want to do the wrong thing and get clobbered!

shelley748

Taxation is based on "residency", so if you are a resident of the UK, its UK. Now be careful because if you move during the tax year, the Canadian CCRA will ask about your "Worldwide income" when you file taxes in Canada. So make sure that you don't move until a new tax year i.e.Jan-Dec, not April-April as in UK.

JonboyE

It is a question of where he is tax resident when he receives the "tax free" lump sum. I use quotation marks because it is not tax free in Canada.

Activating PR does not, in itself, mean that you become tax resident in Canada. If you arrive here, activate your PRs and establish no other residential ties to Canada (definite no nos are applying for a driver's license or for a provincial health plan) and then you all go back to the UK after a brief holiday then he will remain tax resident in the UK.

He can then receive his tax free lump sum and, the day after it hits his bank account, he can jump on a plane to Canada and take up residence here. The Canadian government has no power to tax UK source income for someone who is not tax resident in Canada.

JonboyE

It is not so bad. The CRA can ask you about your worldwide income for the 2 years before you become tax resident in Canada in order to decide how much child tax benefit you are entitled to. However, they cannot tax you on that income. The difference in tax years does not matter.

jugapper

Great - thanks JonBOyE! Thats what we were hoping to do, get the payment then leave a few weeks later. Was just confused about how they determine if you are a tax resident but you've cleared that one up for me as well!

Cdnshaz

We actually called Canada revenue, what they told us was totally different then what is being said here

My husband will also have a lump sum, so we asked if he landed to activate PR then returned to UK to work out his remaining time, would we be liable for canadian tax....THEY SAID YES...as we would be returning to Canada with the lump sum and as he is a PR...he pays tax on it. That is what we were told 6 months ago.

JonboyE

Then the CRA are talking bo**ocks. It is a different story if he landed in Canada and set up a permanent home here, and then went back to the
UK to collect his lump sum. He would have become tax resident in Canada when he set up a permanent home here, and subsequent world-wide earnings are taxable in Canada. However, if all he did was to arrive in Canada, activate PR, have a short vacation and then return to his home in the UK he does not become tax resident in Canada.

This is their own webiste http://www.cra-arc.gc.ca/tx/nnrsdnts...sdncy-eng.html. Follow the links to their Interpretation Bulletin IT221 for more detailed explanation. You will see that a person's immigration status is not mentioned as a deciding factor in determining someone's tax status.

Further, the tax treaty (Article 4 section 2) is quite clear that you cannot be tax resident in the UK and Canada at the same time. If your OH is ordinarily (tax) resident in the UK he doesn't lose that status because he takes a vacation abroad. As long as he is tax resident in the UK he CANNOT be tax resident in Canada under section 250 (5) of the Income Tax Act.

Cdnshaz

I went to that site, think we are screwed, it says if you keep no ties
deed to our house has both are names, along with property tax bill
joint canadian bank accounts and credit cards
he has personal property there as well
and very close ties to my family

Now this would indicate to me that he would pay tax on lump sum. Maybe our case is different as he has ties?

ann m

I'm sure Jon will come back with the correct answer, but this is one of those occasions Cdnshaz where you hope common sense would prevail ?!

If your husband is currently living and working and paying tax in the UK, then surely, at this time, he is a resident of the UK? And if you cannot be deemed as a (tax) resident in both countries at the same time, how can he be liable to pay Canadian tax too ?

jugapper

Getting confused now....

So in that case, do you think it is not a good idea to open a Canadian Bank account before we move? Thats what we wanted to do like most people seem to and put money in from the Uk as and when, but do you think they could even use that to try and prove you had ties in Canada already for tax purposes?

Getting worried now that one wrong move could cost us thousands....

JonboyE

I am sorry, but I don;t really understand what you are saying here.

You have joint Canadian bank accounts and credit cards? This is evidence that points to being tax resident in Canada, but it is certainly not conclusive evidence.

Is your house in the UK or Canada? Do you live there together? And this personal property, is it in the UK or Canada?

Are you Canadian? I assume your OH is not if he is landing to become a PR.

Cdnshaz

[QUOTE=JonboyE;7867006]I am sorry, but I don;t really understand what you are saying here.

You have joint Canadian bank accounts and credit cards?
Yes we have bank acct and numerous credit cares, I also retained my Ont drivers license

This is evidence that points to being tax resident in Canada, but it is certainly not conclusive evidence.

Is your house in the UK or Canada?
House is in Canada

Do you live there together? We live in UK


And this personal property, is it in the UK or Canada?
It is in Canada, every time we go home we take things with us and leave it there

Are you Canadian? I am canadian he is british

I assume your OH is not if he is landing to become a PR.4"]You are correct he is not and has not obtained his Pr as of yet

They also told me as a canadian citizen still owning property that I have to file income tax every year as I have a tenant in our house, hence I am required to pay tax in 2 countries, they also expect me to claim any world wide income, I do also get to claim any tax paid on my british wages, but as tax is higher in Canada, they still want me to pay income tax on my british wage!!

so yes you can pay tax in 2 countries

JonboyE

It is no problem to open a Canadian bank account before you arrive. We did, lots of people do. It is what you do with the account that matters.

If the Canadian account has relatively few transactions: some transfers from the UK and maybe some preliminary expenses , like a deposit on a rental unit, while your UK account has all the normal transactions of daily life like your salary deposits, payments like your mortgage, insurance premiums, grocery shopping and so on this can be very strong evidence that you are still resident in the UK.

Bank accounts are a bigger deal for people leaving Canada. To become non-resident in Canada for tax purposes you have to live abroad with the intention of permanently leaving Canada. If this is the claim you are making the CRA will look for your bank accounts and question why you maintain bank accounts in Canada if you intend to permanently leave the country.

Cdnshaz

I had no intentions on leaving Canada on a perm basis, my husband was fully aware when we married and he retired we were going to Canada.
I have been gone for 10 yrs tho and have dual nationality, we do not own a house in UK, and no mortgage in Canada.
I kept all my canadian ties, as I knew I would be returning, yes our day to day life is in UK at the moment, BUT I do use my canadian acct as often as my british one, and I use my canadian credit cards more then my british one.
So not sure where we stand, I guess technically we are mostly in UK...and he has only worked in UK.
I only know what Canada Revenue told me(which could have been waay off base, who knows), and will certainly check it out very carefully..

JonboyE

[QUOTE=Cdnshaz;7867073] Thank you for the clarification. Your situation is more complex than the straightforward case of a new immigrant that I was explaining for the OP.

There is no question that you can pay tax in 2 (or even more) countries. However, as far as the UK/Canada are concerned you can only be tax resident in one. The difference is that the country in which you are tax resident is entitled to tax you on your world-wide income, but the country where you are non-resident is only entitled to tax you on income that is sourced in that country.

As a Canadian, you remain tax resident in Canada until you leave the country with the intention that the departure is permanent. That is going to be difficult to claim now that you are intending to move back!
As you have found out, you pay tax in Canada on your UK earnings, though you get a credit for the tax paid in the UK.

For most Brits, activating PR does not, in itself, trigger a change in tax residency. However, PR coupled with other residential ties does. The example the CRA give is that if you become a PR and apply to a provincial health plan then you are tax resident in Canada. (The logic is that you have to be resident in a province to be eligible to join a proincial health plan.) I assume the CRA are arguing that if he becomes a PR and has residential ties such as the bank accounts and credit cards and personal property then this tips the balance and so they will consider him tax resident as soon as he becomes a PR.

I don't think it is that simple. The following is from the tax treaty:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

If your Canadian house is rented to tenants it is not available to him as a permanent home, and so does not count. If he has a home available to him in the UK, but not in Canada, then he is tax resident in the UK. The second test is the personal and economic relations. This is a bit weaker test in his case, but if he is still being paid a salary in the UK for working in the UK, and all his day to day expenses are paid in the UK you can make a pretty good case that he is still resident in the UK.

The third and fourth tests, habitual abode and nationality are also in his favour.

Lastly, does HMRC think he is tax resident in the UK? As long as they do he cannot be tax resident in Canada.

If the lump sum he will get is a sizable amount you might be best to consult a tax lawyer in Canada. From the information you have given me this seems to be a clear-cut issue that the CRA will have to accept if it is presented to them properly.