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READ ME. PENSION RULES UK to Canada

READ ME. PENSION RULES UK to Canada

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Old Jun 8th 2017, 12:28 am
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Default Re: READ ME. PENSION RULES UK to Canada

How is the flexi drawdown scheme taxed. Is it in the UK and you claim a foreign tax credit or are you able to get relief at source in the UK under SI 1980 number 790. I only ask as it is a pain in Canada where the tax years are different and I end up waiting 5-8 months for the foreign tax credit to be credited back.

Very interested to find out how the 25% tax free pans out as I will be in that boat very soon.
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Old Jun 8th 2017, 1:10 am
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Default Re: READ ME. PENSION RULES UK to Canada

After speaking with two IFAs they both indicate that the 25% tax free lump sum IS taxable if you are already resident in Canada.

This from the wiki section on this site

Tax-Free Lump Sum : British Expat Wiki
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Old Jun 8th 2017, 2:19 am
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Default Re: READ ME. PENSION RULES UK to Canada

My husband has a British Transport Police pension and was only allowed to take a maximum lump sum of 25% under his scheme. Despite two letters from the pension provider, CRA have done their own calculations using I dont know what exchange rate and have now given us a bill for a little under $9k. So it looks like we will opt to take this to tax court. We have contacted HMRC in Uk to ask them to provide in writing that we did not receive more than 25%. I am also going to speak to my Tax Advisor when he returns from vacation next week and ask him to work out if there would be any tax owing on the earnings taking out the lump sum figures to compare with what CRA are saying. Once we have the information, I will go back to CRA and ask if they will take another look, before we apply to go to Tax Court......we have 90 days to put in the application.

We feel that CRA erred in working with any figures once they were told that we did not have more than 25% as a Tax Free Lump Sum, they have tried to work the figures to make it look like we got more than 25% despite being told twice by our pension provider what the position was. They should have then left it alone....afterall they dont know the equation used by the pension provider, but that is not relevant. These should be easily arguable points to take to Tax Court. The decision to charge on a fictitious amount can only be perverse. It also serves to prove that CRA are largely inexperienced with dealing with this issue, which is probably why so many people have been charged tax on their lump sums.

Watch this space. I will post as soon as I know what direction this is going or if we get a more realistic outcome. My husband was on EI and then got a low paying job, so not a high earner......tax was taken from EI at source and his work earnings were taxed normally. There is no way we should have this size of bill if they took the Tax Free lump sum off the tax return.
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Old Jun 8th 2017, 4:20 am
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Default Re: READ ME. PENSION RULES UK to Canada

Hi Stef
I really wish you can succeed in your case. I would love to be able to access my tax free cash but all the cases I have read lead me to believe that the CRA will tax it. I wait hopefully for a positive outcome from your case.Good luck and I await further updates
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Old Jun 8th 2017, 5:02 am
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Default Re: READ ME. PENSION RULES UK to Canada

If you go back to my earlier post, you will see that they should not tax it if your lump sum does not exceed 25%. There is legislation to back this up. You do need to make sure that you have letters stating that from your pension provider, but this was not enough for them, so we have sought confirmation from HMRC as well. Just make sure you have all your ducks in a row and I would not then include it on your tax return for the period as to do so will confuse them and put you into a higher tax bracket and then they will try to do their own unnecessary equation to try to make it look like you got more than 25%. Just keep the paperwork and if questions are asked further down the line you can quote the legislation and also provide proof if you need to. It should not then be added to your worldwide income as it is exempt........so dont give them any figures. Your monthly pension going forward is taxable here in Canada as worldwide income.......but should not also be taxed in UK.....if it is being taxed in UK, you need to get that stopped.

If however you take more than 25%.....if your scheme allows it......then anything over will be taxed as worldwide income.
Stef

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Old Jun 9th 2017, 11:13 pm
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by lins and Stef McLachlan View Post
Afterall, you can inherit money from a source outside Canada as long as the death duties have been paid already in that country....so Tax Feee in Canada
That's an irrelevant comparison, that's a gift. A pension is totally different.

A SIPP for example isn't even covered by inheritance tax, it's essentially a legal form of trust (the trustee decides who inherits it, legally).

The relevant bit of the tax treaty is Article 17. That describes a pension as an annuity which is essentially the dictionary definition.

The whole UK "lump sum" things from pensions and SIPPs always causes tax problems because clearly, it's not an annuity. I'm not sure how the CRA does it but generally worldwide it's often seen as income and thus taxable as income. That it isn't taxed as income in the UK is actually unhelpful as there is thus no tax to claim a foreign tax credit against.

Whenever this topic comes up the mental note is to never take the lump sum from a UK pension because it always seem to be a huge tax hassle. I know there was some US agreement because people were moving to the UK and then taking a lump sum out of their 401(k)s which pissed off the IRS.

I can't see much point going to tax court, talk to a tax lawyer, doubtless there is case law on the subject. Just quote it to the CRA if it helps.

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Old Jun 9th 2017, 11:21 pm
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by eaglestorm View Post
How is the flexi drawdown scheme taxed. Is it in the UK and you claim a foreign tax credit or are you able to get relief at source in the UK under SI 1980 number 790. I only ask as it is a pain in Canada where the tax years are different and I end up waiting 5-8 months for the foreign tax credit to be credited back.
I'm not sure what a flexi drawdown is, but if there's no UK tax there's no tax to claim a Canadian foreign tax credit against. As I've just posted above, the treaty says it has to be an annuity, so the simplest thing to do is to take it as an annuity.

Unless there's some other bit in the Income Tax Act that exempts it somehow, but I don't think there is.

The telling point to me on this is how incredibly comprehensive the US-Canada tax treaty is on the treatment of RRSPs, LIRAs, IRAs and 401(k)-type accounts, it's been amended multiple times for various reasons to do with them - and as I'm sure you know, you can't take a lump-sum out of an RRSP for example without paying income tax on it. So I'd be surprised given the scanty nature of the UK-Canada treaty if there was an exemption.
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Old Jul 5th 2017, 8:54 pm
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Default Re: READ ME. PENSION RULES UK to Canada

Any developments on this subject?
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Old Jul 5th 2017, 9:42 pm
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by Cheltonian View Post
Any developments on this subject?
This is an extract from Income Tax ruling 911675. It is quite old – from 1999 – but I cannot find a more recent update.

To summarize, a single amount paid out of a United Kingdom pension plan will be taxable as "pension" in Canada unless it is in settlement of all future benefits under the plan. Accordingly, where a person has elected to receive an initial lump sum payment but not one that was in settlement of all future benefits, the amount will be "pension" pursuant to section 3 of Article 17 of the Convention and may be taxed by Canada pursuant to section 56 of the Act. In this respect, it is irrelevant that the amount may be received tax free by a recipient who is resident in the United Kingdom.
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Old Jul 6th 2017, 12:31 am
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Default Re: READ ME. PENSION RULES UK to Canada

I have the form which permits relief against a UK pension in terms of tax owing to HMRC . It is signed and dated by the CRA to the effect that I am resident and domiciled in Canada and pay taxes here. It can be fixed drawdown, flexi drawdown etc not necessarily a purchased annuity.
Both my tax advisor here and my IFA in the UK state that the 25% tax free lump sum that you can take from a UK pension pot would be fully taxable here in Canada as I am no longer resident or domiciled in the UK.
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Old Jul 10th 2017, 7:49 am
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by JonboyE View Post
Accordingly, where a person has elected to receive an initial lump sum payment but not one that was in settlement of all future benefits, the amount will be "pension" pursuant to section 3 of Article 17 of the Convention and may be taxed by Canada pursuant to section 56 of the Act.
That's a bit of a weird ruling. What they're basically saying is that the lump sum withdrawal is part of an annuity, thus taxable as pension income pursuant to Article 17. My argument is that's not part of a pension at all and is simply income and thus taxable. How can a lump sum be defined as a pension? Legally you can only do it once, so by definition it's not periodic.

Anyway totally academic from the OP's point of view, either way, it's income and thus taxable in Canada.
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Old Jul 10th 2017, 7:52 am
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by JonboyE View Post
HMRC do not recognize RRSPs as-tax sheltered savings vehicles.

https://www.gov.uk/hmrc-internal-man...-relief/dt4617
This is not that big of a deal though, basically they're saying it gets hit with the 25% Canadian non-resident tax, not UK income tax, so meh. I suppose it's a bit more but anyway, another good reason to never live in the UK again.
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Old Jul 10th 2017, 9:16 am
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by eaglestorm View Post
After speaking with two IFAs they both indicate that the 25% tax free lump sum IS taxable if you are already resident in Canada.

This from the wiki section on this site

Tax-Free Lump Sum : British Expat Wiki
Then if that is the case why has my husbands bill been reduced by CRA from $40k to $8k already. Read the rule.
This other $8k will be reduced when we go to tax court, because they worked with figures, when the should not have once they were told that it fell into the below 25% range, which we aim to prove is not correct.

CRA have given me details of the rule. This clearly states that if the 25% is not taxable in its country of origin, it is not subject to tax in Canada.
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Old Jul 16th 2017, 9:05 am
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Default Re: READ ME. PENSION RULES UK to Canada

I paid a substantial sum to the CRA for my pension lump sum. I will obviously write to them to see what their reply is. If anyone has a formal letter from the CRA with confirmation that this is the case that would be great. I know Johnboy has been a greet source for tax information on this site and this would have massive implications for many of us who has received our pension lunp sums while we were resident in Canada.
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Old Jul 16th 2017, 9:55 am
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Default Re: READ ME. PENSION RULES UK to Canada

It is official. We got a registered letter containing a reassessment dated May 23, 2017. I can send you a couple of pictures of the parts of the letter which are relevant to this, but will need your email as I dont know how to attach docs to this. I also do not want to post this online as it is personal information. You are going to need a letter from your pension provider clearly stating that you did not receive more than 25% as your Tax free lump sum
PM Me your email.....,that goes for anyone else who needs this......Jonboy, this includes you.

I also spoke to HMRC in UK and they said that because it was below the 25% that they were not told of it as there was no tax owing to them, so they had no interest in it and there was nothing they could add of relevance as we never paid any tax in the UK on this amount.
Stef

Last edited by lins and Stef McLachlan; Jul 16th 2017 at 10:02 am.
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