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READ ME. PENSION RULES UK to Canada

READ ME. PENSION RULES UK to Canada

Old Oct 15th 2018, 5:27 pm
  #121  
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Default Re: READ ME. PENSION RULES UK to Canada

I cant find the CRA letter - can someone please direct me
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Old Oct 15th 2018, 5:52 pm
  #122  
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by bielbs View Post
I cant find the CRA letter - can someone please direct me
Neither could I, hence my request to Hurlabrick to direct us, in September..
Originally Posted by Hurlabrick View Post
Stef has emailed me jpg's of the relevant portions of the CRA letter. I will updated the wiki as appropriate in the next few days when I get back from the current road trip!
Originally Posted by Siouxie View Post
Could you give a link to the wiki page(s) when you have done so please? Many thanks
I had thought it would be on this page, but it hasn't been updated since 2011.
https://britishexpats.com/wiki/Tax-Free_Lump_Sum

Last edited by Siouxie; Oct 15th 2018 at 5:55 pm.
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Old Oct 16th 2018, 12:09 am
  #123  
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by bielbs View Post
I cant find the CRA letter - can someone please direct me
Please PM me your email address and I will email you the documents.
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Old Oct 16th 2018, 4:36 am
  #124  
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by TonyWFC View Post
Please PM me your email address and I will email you the documents.
Perhaps you would like to upload them (with identifying information removed) to the wiki instead, so others can benefit from the information as well.

Thanks
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Old Oct 20th 2018, 3:47 am
  #125  
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Default Re: READ ME. PENSION RULES UK to Canada

From the UK/Canada Tax Treaty

Does item 2 deal with the up to 25% tax free lump sum (if in the UK)? Attempted to send to JonBoyE - but thought I would also include on here.

Article 27


Miscellaneous Rules

>BIG SNIP<

2. Where under any provision of this Convention any person is relieved from tax in a Contracting State on certain income and, under the law in force in the other Contracting State, that person is subject to tax in that other State in respect of that income by reference to the amount thereof which is remitted to or received in that other State, the relief from tax to be allowed under this Convention in the first-mentioned State shall apply only to the amounts so remitted or received.

>BIG SNIP<
https://www.fin.gc.ca/treaties-conventions/uk_-eng.asp

Last edited by Siouxie; Oct 20th 2018 at 5:08 am. Reason: Site Rule 7. Copyrighted Material. Sorry, you can't post huge swathes from the website- I've inserted the link instead
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Old Oct 20th 2018, 12:59 pm
  #126  
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Default Re: READ ME. PENSION RULES UK to Canada

[QUOTE=DoeBird;12580436]From the UK/Canada Tax Treaty

Does item 2 deal with the up to 25% tax free lump sum (if in the UK)? Attempted to send to JonBoyE - but thought I would also include on here.


I can hardly understand what's been said, so I have no idea!
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Old Oct 20th 2018, 1:19 pm
  #127  
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Default Re: READ ME. PENSION RULES UK to Canada

Yes. Confusing indeed!
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Old Dec 2nd 2018, 11:05 pm
  #128  
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Default Re: READ ME. PENSION RULES UK to Canada

Contacted a tax lawyer in Calgary - gave a copy of the letter from the Summerside tax office - the company agreed to look into the issue and this is their response


''We did some research on this issue, and unfortunately, the news isn’t good.
Under the UK/Canada tax treaty, where pension payments are paid by one country, to a resident of the other country, the pension payments are taxable in the Country the person is a resident in.
You also referred to paragraph 56(1)(a)(i)(c.1). However, a foreign retirement arrangement under that provisions is defined in subsection 248(1) as a “prescribed plan or arrangement”. Under regulation 6803 the only prescribed plan is under the USA Internal Revenue Code. As such, the exception provided in this provision doesn’t apply to UK pension payments''
It looks like so long as your husband was a resident of Canada, then the payment is taxable in Canada.


I asked the tax lawyer how it was possible the Summerside Office allowed the payment to be tax free, and their response was

''Perhaps they did not review the regulation, and simply made a mistake. It happens due to the complexity of tax.''


I never doubted the expert knowledge of JohnBoyE, but thought we would give it a try - turns out the original thread starter, just got lucky

Last edited by bielbs; Dec 2nd 2018 at 11:07 pm.
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Old Dec 3rd 2018, 12:34 pm
  #129  
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Default Re: READ ME. PENSION RULES UK to Canada

I have had the same response from PWC and should have their detailed written response shortly. A very good friend of mine instructed his own accountant and again he got the same answer. His accountants view is posted below.

Further to your request noted below, we have conducted a considerable amount of research regarding the taxability of a lump sum amount received at the commencement of a UK pension plan, and also requested an opinion from the IT Rulings Directorate (“ITRD”) of the CRA. Our conclusion is necessarily a bit technical so we have reproduced the relevant portions of the Income Tax Act below, and also a few paragraphs from the material provided to us by the ITRD. We are providing our complete conclusion since we are aware that there are a number of other taxpayers in similar situations that you may be in contact with now or in the future.

The relevant fact set as we understand it, and as we summarized for the ITRD is:

A taxpayer immigrated from the UK to Canada. Sometime after becoming resident in Canada, the taxpayer retired and began to draw on a private UK pension. Under UK law, up to 25% of a pension may be withdrawn upon retirement on a tax-free basis, so the taxpayer opted to do so. Is this amount taxable in Canada?

The letter you provided to us states:

“A review of the facts and documents submitted indicates that, regarding the lump sum pension amount, the letter you submitted from the British Transport Police dated May 11, 2017, indicates that 25% of the total crystallisation amount can be taken as a tax-free lump sum. Sub-clause 56(1)(a)(i)(C.1) of the Income Tax Act indicates that any foreign pension amount that would not be subject to income tax in the country of origin will not be subject to income tax in Canada.”

That is not what the referenced sub-clause actually says; it states:

“Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year, any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of, a superannuation of pension benefit including, without limiting the generality of the foregoing, the amount of any payment out of or under a foreign retirement arrangement established under the laws of a country, except to the extent that the amount would not, if the taxpayer were resident in the country, be subject to income taxation in the country.”

The key difference is that the portion of this clause which exempts certain receipts from taxation refers not to a “pension”, but a “foreign retirement arrangement”. Unlike the term “pension”, which is not defined in the Income Tax Act, the term “foreign retirement arrangement” is assigned a specific meaning. In Regulation 248(1) it states:

“Foreign retirement arrangement means a prescribed plan or arrangement.”

This is not very helpful, so one must look to regulation 6803 for further guidance:

“For purposes of the definition “foreign retirement arrangement” in subsection 248(1) of the Act, a prescribed plan or arrangement is a plan or arrangement to which subsection 408(a), (b) or (h) of the United States’ Internal Revenue Code of 1986, as amended from time to time, applies.”

Therefore, we conclude that the exempting provision in subsection 56(1)(a)(i)(C.1) applies only to certain US plans and no others, meaning that any amounts received from a UK pension plan are fully taxable.

When presented with the fact set above, the ITRD responded by sending us two responses that it sent to other taxpayers who had made related inquiries. The relevant paragraphs from the first response are:

“Canadian residents are generally required to include in their income all amounts received as a superannuation or pension benefit, pursuant to subparagraph 56(1)(a)(i) of the Act. A "superannuation or pension benefit" is defined to include any amount received, including any lump-sum payment, out of or under a superannuation or pension fund or plan. Subparagraph 56(1)(a)(i) of the Act also applies to benefits from a foreign pension plan unless the amount is exempted by the provisions of a tax treaty.

The Canada-U.K. Income Tax Convention (the "Treaty") does not prevent Canada from taxing pension receipts. Paragraph 1 of Article 17 of the Treaty provides that periodic pension payments arising in the UK and paid to a resident of Canada shall be taxable only in Canada. Paragraph 3 of Article 17 broadly defines the term "pension" to include any payment under a superannuation, pension or retirement plan, as well as any payment made under the social security legislation in the UK.”

This confirms that all amounts received from a UK pension plan are taxable. The relevant paragraph from the second response is:

“You made reference to clause 56(1)(a)(i)(C.1) of the Act and the definition of "foreign retirement arrangement" in subsection 248(1) of the Act. Please note that a "foreign retirement arrangement" is defined to mean a plan or arrangement as prescribed by the Income Tax Regulations (the "Regulations") and section 6803 of the Regulations presently only prescribes those plans or arrangements to which subsections 408(a), (b) or (h) of the United States Internal Revenue Code applies. Therefore, an arrangement or plan established under Hong Kong law is not a "foreign retirement arrangement" under the Act.”

This confirms that the exempting provision does not apply to non-US plans.

It appears that the recipient of the letter which you provided to us was simply lucky in achieving a tax result that is incorrect in law.
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Old Dec 3rd 2018, 3:42 pm
  #130  
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Default Re: READ ME. PENSION RULES UK to Canada

It would be great if these could be included in our wiki section on Pension transfers as it appears the information provided there may no longer be accurate. Do feel free to add them in

https://britishexpats.com/wiki/Trans...ions_to_Canada


There's also this: https://britishexpats.com/wiki/Tax-Free_Lump_Sum
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Old Jan 12th 2019, 5:45 pm
  #131  
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by lins and Stef McLachlan View Post
This is a very important message to those of you who have immigrated to Canada and after the event drawn a UK Pension which allowed for a Tax Free Lump Sum ( in the UK )

As you are Tax Resident in Canada you have to declare all worldwide income to CRA and pay tax accordingly.

My husband was in the position of receiving a Tax Free Lump sum. We nearly had a heart attack when we had to report this amount on our Canada Tax Returns. We were given a bill for nearly $40k.

This does not apply to your monthly income from a Pension.....sadly that is taxable in Canada as Worldwide Income

I know from reading articles here that many of you have paid the tax on this lump sum in Canada.

If that is the case you should be entitled to a REFUND because you are not permitted by HMRC to draw more than 25% of your crystalisation amount as a lump sum. In other words your total Pension Pot. SO...under the Tax Treaty with the UK this is also TAX Free In CANADA up to 25%.

What you need to do is to go back to your pension provider and request a letter clearly stating that under HMRC rules you were not permitted to take more than 25% as a Tax Free Lump Sum. That the amount you received as your lump sum was under that Percentage. You then need to go back to CRA and tell them that you want a refund as you have wrongly paid tax on this amount.

We have this on first hand knowledge having challenged why Canada thought they had any claim on a Pension which was paid into over many years in the UK. That it had nothing whatsoever to do with Canada and that it was simply robbing a pension pot from someone who was trying to settle and needed every penny in order to do so. That is was totally perverse and clearly not right by any standards.

I want to wish you all well in the challenge. If you have any other questions please feel free to PM me
I hope I have cheered some of you up. Have a great day
Stef
just posting to get info from steff
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Old Jan 12th 2019, 6:43 pm
  #132  
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by Rosemarie1234 View Post
just posting to get info from steff
My buddies and I have spent in excess of $10,000 CAD investigating this. The bottom line is tax is due and Steff got a lucky break (good on him and I am jealous!)

But I wish you the best of luck should you chance your arm - you might get the same dude who Steff got!
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Old Jan 12th 2019, 8:44 pm
  #133  
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Default Re: READ ME. PENSION RULES UK to Canada

https://britishexpats.com/wiki/Trans...ions_to_Canada
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Old Jan 18th 2019, 12:47 pm
  #134  
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Default Re: READ ME. PENSION RULES UK to Canada

I have a quick question regarding the 25% lump sum I can take later this year.
Can I split the amount with my wife on our tax return to reduce the seemingly now unavoidable tax liability.
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Old Jan 26th 2019, 6:22 pm
  #135  
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Default Re: READ ME. PENSION RULES UK to Canada

Originally Posted by Siouxie View Post
It would be great if these could be included in our wiki section on Pension transfers as it appears the information provided there may no longer be accurate. Do feel free to add them in

https://britishexpats.com/wiki/Trans...ions_to_Canada


There's also this: https://britishexpats.com/wiki/Tax-Free_Lump_Sum
I have now suitably updated the wiki section to reflect this. See here:

http://britishexpats.com/wiki/Transf..._Free_Lump_Sum
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