Self Employed v Employed
May 10th 2013 | 11:53 am
#16
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
Yes, it is different. If someone just lands and heads back to the UK to carry on their normal life then they do not become tax-resident in Canada because they have not established residential ties here. Nor have they relinquished residential ties to the UK.
If you are currently resident and ordinarily resident (for tax purposes) in the UK then you do not lose this status unless you leave the UK permanently, for an indefinite period, or for at least 3 years. HMRC also have a rule that if you have left permanently but return to the UK for more than 91 days a year then you are taxed as a resident.
Given this, I believe HMRC will continue to consider you a resident in the UK for tax purposes.
The CRA, on the other hand, look at where you live. If you and/or your wife own or rent a home in Canada, you are not legally separated and your wife and dependent kids live in this home, the CRA will say that you live in Canada and just travel to the UK to work.
You cannot be tax-resident in both Canada and the UK at the same time. You therefore have to look at the tax treaty to get the tie breaker rules. These are:
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;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
So, will your centre of vital interests be weighted by the personal (home and family in Canada) or economic (job in the UK)? It's hard to say without a full knowledge of all the facts. And with any fact based decision it is how whoever is deciding interprets those facts.
If you are currently resident and ordinarily resident (for tax purposes) in the UK then you do not lose this status unless you leave the UK permanently, for an indefinite period, or for at least 3 years. HMRC also have a rule that if you have left permanently but return to the UK for more than 91 days a year then you are taxed as a resident.
Given this, I believe HMRC will continue to consider you a resident in the UK for tax purposes.
The CRA, on the other hand, look at where you live. If you and/or your wife own or rent a home in Canada, you are not legally separated and your wife and dependent kids live in this home, the CRA will say that you live in Canada and just travel to the UK to work.
You cannot be tax-resident in both Canada and the UK at the same time. You therefore have to look at the tax treaty to get the tie breaker rules. These are:
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;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
So, will your centre of vital interests be weighted by the personal (home and family in Canada) or economic (job in the UK)? It's hard to say without a full knowledge of all the facts. And with any fact based decision it is how whoever is deciding interprets those facts.
I will have sold the family home in the UK and had planned to stay with my Dad in the Uk for the 1 or 2 year period my company have requested. In light of th tie breaker rules does this change anything.
I suspect I may need to talk to you at greater length about this. I have sent you a PM.
Thanks again.
May 10th 2013 | 1:10 pm
#17
Binned by Muderators
Joined: Jul 2007
Posts: 11,708
From: White Rock BC
Re: Self Employed v Employed
Other things they will look at are:
* personal property such as do you own a car in Canada
* professional connections such as have you applied for mutual recognition of your accountancy qualifictions and have you kept your membership in the UK current
* have you resigned your gym/golf-club memberships in the UK and applied for ones in Canada?
* the nature of transactions inn you bank accounts. If you have bank accounts in both countries which account is used for typical day to day transactions.
Although it is not conclusive, having sold your UK home will make the CRA more likely to consider you a Canadian resident for tax purposes.
May 10th 2013 | 6:56 pm
#18
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
A bit. The CRA's methodology is that if residency is not clear from the basic home and family issues they will look at secondary factors. Two favourite ones are driver's license and healthcare because these should both relate to your country/province of residence. One of the very few rules the CRA has is that if you are a Permanent Resident and you register with a provincial healthcare plan then you will be treated as resident for tax purposes. The reasoning is that you must be resident in a province to be insured by the province's health care plan and if you are resident in a province then you must also be resident in Canada.
Other things they will look at are:
* personal property such as do you own a car in Canada
* professional connections such as have you applied for mutual recognition of your accountancy qualifictions and have you kept your membership in the UK current
* have you resigned your gym/golf-club memberships in the UK and applied for ones in Canada?
* the nature of transactions inn you bank accounts. If you have bank accounts in both countries which account is used for typical day to day transactions.
Although it is not conclusive, having sold your UK home will make the CRA more likely to consider you a Canadian resident for tax purposes.
Other things they will look at are:
* personal property such as do you own a car in Canada
* professional connections such as have you applied for mutual recognition of your accountancy qualifictions and have you kept your membership in the UK current
* have you resigned your gym/golf-club memberships in the UK and applied for ones in Canada?
* the nature of transactions inn you bank accounts. If you have bank accounts in both countries which account is used for typical day to day transactions.
Although it is not conclusive, having sold your UK home will make the CRA more likely to consider you a Canadian resident for tax purposes.
To answer these points -
I am happy to swap over my driver licence. I planned to do this anyway.
I will be registered for healthcare.
My wife and I will own a car in Canada.
I will be applying for mutual recognition of my qualifications.
I am happy to cancel my gym membership in the UK and take up running.
My bank account in Canada will have many more transactions than my UK one.As I will be staying with my Dad I will not have any regular payments leaving my account for household bills / food etc as these are already paid by my Dad therefore my transactions will be very limited.
I suspect this only leaves the 91 day rule to tackle with HMRC.
Any further thoughts now you know this info.
Cheers
May 11th 2013 | 4:33 am
#19
All Sooked up!
Joined: Dec 2010
Posts: 1,895
From: Sooke, BC.
Re: Self Employed v Employed
I've been ex-pat for years. Asia and Portugal. Moved here from Portugal.
I seem to recall (years back) another one HMRC used to look at (believe it or not) was if you had a mobile phone contract in your name in the UK. Maybe registered under your parent address? So, if you do I'd ditch that as well as your club memberships.
I'd also close down any UK bank accounts and UK based credit card accounts also. Failing that, ensure that the account billing/mailing addresses are changed to your address in Canada and not your parents UK address. I was advised that this also helps focus your centre of vital interest away from the UK.
HMRC would also look to see if you had use of a car in the UK whereby you were a named driver on the insurance. So you don't want to be a named driver on Dad's car insurance for example. I would suspect hire cars do not count in that respect.
I may be barking up the wrong tree with the above points as they were pertinent to me for proving I was not a resident of the UK a good few years back. They may not be relevant today.
I seem to recall (years back) another one HMRC used to look at (believe it or not) was if you had a mobile phone contract in your name in the UK. Maybe registered under your parent address? So, if you do I'd ditch that as well as your club memberships.
I'd also close down any UK bank accounts and UK based credit card accounts also. Failing that, ensure that the account billing/mailing addresses are changed to your address in Canada and not your parents UK address. I was advised that this also helps focus your centre of vital interest away from the UK.
HMRC would also look to see if you had use of a car in the UK whereby you were a named driver on the insurance. So you don't want to be a named driver on Dad's car insurance for example. I would suspect hire cars do not count in that respect.
I may be barking up the wrong tree with the above points as they were pertinent to me for proving I was not a resident of the UK a good few years back. They may not be relevant today.
May 11th 2013 | 5:34 am
#20
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
I've been ex-pat for years. Asia and Portugal. Moved here from Portugal.
I seem to recall (years back) another one HMRC used to look at (believe it or not) was if you had a mobile phone contract in your name in the UK. Maybe registered under your parent address? So, if you do I'd ditch that as well as your club memberships.
I'd also close down any UK bank accounts and UK based credit card accounts also. Failing that, ensure that the account billing/mailing addresses are changed to your address in Canada and not your parents UK address. I was advised that this also helps focus your centre of vital interest away from the UK.
HMRC would also look to see if you had use of a car in the UK whereby you were a named driver on the insurance. So you don't want to be a named driver on Dad's car insurance for example. I would suspect hire cars do not count in that respect.
I may be barking up the wrong tree with the above points as they were pertinent to me for proving I was not a resident of the UK a good few years back. They may not be relevant today.
I seem to recall (years back) another one HMRC used to look at (believe it or not) was if you had a mobile phone contract in your name in the UK. Maybe registered under your parent address? So, if you do I'd ditch that as well as your club memberships.
I'd also close down any UK bank accounts and UK based credit card accounts also. Failing that, ensure that the account billing/mailing addresses are changed to your address in Canada and not your parents UK address. I was advised that this also helps focus your centre of vital interest away from the UK.
HMRC would also look to see if you had use of a car in the UK whereby you were a named driver on the insurance. So you don't want to be a named driver on Dad's car insurance for example. I would suspect hire cars do not count in that respect.
I may be barking up the wrong tree with the above points as they were pertinent to me for proving I was not a resident of the UK a good few years back. They may not be relevant today.
If you think it would help I could shut down my credit cards and redirect my bank mail to my canadian address.
Thanks for the input.
May 11th 2013 | 7:56 am
#21
All Sooked up!
Joined: Dec 2010
Posts: 1,895
From: Sooke, BC.
Re: Self Employed v Employed
Maybe keep at least one card if you feel you must, but switch the billing address to Canada as well.
Normally keeping UK cards and bank accounts is not an issue for those that reside and work in Canada most of the time as HMRC would have no longer have interest in them, but in your current situation I'd cut as many fiscal ties as you possible can with the UK, but still fulfil your current employment obligations. Should you ever be investigated, or need to argue your centre of vital interest with them, the less HMRC can dig up on you in the system the better.
Normally keeping UK cards and bank accounts is not an issue for those that reside and work in Canada most of the time as HMRC would have no longer have interest in them, but in your current situation I'd cut as many fiscal ties as you possible can with the UK, but still fulfil your current employment obligations. Should you ever be investigated, or need to argue your centre of vital interest with them, the less HMRC can dig up on you in the system the better.
Last edited by james.mc; May 11th 2013 at 8:05 am.
May 11th 2013 | 9:14 am
#22
Joined: Sep 2008
Posts: 12,830
Re: Self Employed v Employed
May 11th 2013 | 10:30 am
#23
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
A bit. The CRA's methodology is that if residency is not clear from the basic home and family issues they will look at secondary factors. Two favourite ones are driver's license and healthcare because these should both relate to your country/province of residence. One of the very few rules the CRA has is that if you are a Permanent Resident and you register with a provincial healthcare plan then you will be treated as resident for tax purposes. The reasoning is that you must be resident in a province to be insured by the province's health care plan and if you are resident in a province then you must also be resident in Canada.
Other things they will look at are:
* personal property such as do you own a car in Canada
* professional connections such as have you applied for mutual recognition of your accountancy qualifictions and have you kept your membership in the UK current
* have you resigned your gym/golf-club memberships in the UK and applied for ones in Canada?
* the nature of transactions inn you bank accounts. If you have bank accounts in both countries which account is used for typical day to day transactions.
Although it is not conclusive, having sold your UK home will make the CRA more likely to consider you a Canadian resident for tax purposes.
Other things they will look at are:
* personal property such as do you own a car in Canada
* professional connections such as have you applied for mutual recognition of your accountancy qualifictions and have you kept your membership in the UK current
* have you resigned your gym/golf-club memberships in the UK and applied for ones in Canada?
* the nature of transactions inn you bank accounts. If you have bank accounts in both countries which account is used for typical day to day transactions.
Although it is not conclusive, having sold your UK home will make the CRA more likely to consider you a Canadian resident for tax purposes.
Can you help me out here.
The only reason I'm bothered about being tax resident in Canada is that I want to have the 3 years CRA statements confirming my income in order that I can qualify to sponsor my parents in 3 years however I may be creating a problem where none exists.
In the event that I end up being classed as UK for tax purposes and therefore file SA here then I would also need to file a return in Canada in any case which will detail my overall income worldwide income which will be sufficient to prove my income for sponsorship purposes.
I would then just claim a tax credit on my canadian return as the countries have a tax treaty with one another.
Am I being naive here or would this scenario achieve what I need it to.
Regards
May 11th 2013 | 10:35 am
#24
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
Jon
I should also say that I will most likely terminate my employment and invoice the company once a month in $CAD from my canadian address for consultancy fees.
I should also say that I will most likely terminate my employment and invoice the company once a month in $CAD from my canadian address for consultancy fees.
May 11th 2013 | 2:18 pm
#25
Born again atheist
Joined: Jul 2005
Posts: 30,259
From: Europe (to be specified).
Re: Self Employed v Employed
May 11th 2013 | 9:56 pm
#26
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
As it is they that have requested I stay on for the period we have agreed that I I'll have 9 weeks off which as they can't pay me holidays they will pay me a retainer fee amounting to an agreed sum. This will allow me to visit my family for 2/3 weeks at at time and they will most likely come over for a week or so to visit me.
Is my assumption above regards to filing taxes correct as if so I will then have the CRA statements I require in order to sponsor my parents.
Thanks
May 12th 2013 | 10:45 am
#27
Binned by Muderators
Joined: Jul 2007
Posts: 11,708
From: White Rock BC
Re: Self Employed v Employed
The problem is not being tax-resident in Canada as the CRA will be more than happy to process your return and relieve you of your hard earned. It is with the UK letting you go.
Tax residency is most important because you pay tax on your world-wide income in the country where you are tax-resident. In other countries you only pay tax on income that is sourced in that country. If you have only one source of income this is less of an issue.
Now that I understand your situation a bit better I think you are probably on the right track. You can file tax returns as a self-employed person in Canada. Business income in the UK earned by a resident of Canada, who does not operate from a permanent establishment in the UK, should not be taxed in the UK. However, it puts your employer in a bit of a spot.
If HMRC determine that you are still a UK resident, and your relationship is as an employer/employee then your "employer" will be on the hook for the tax/NI they should have deducted. If they determine that you are self-employed but still resident in the UK you might be penalized for not paying tax/NI in the UK and not filing returns. You will probably get dinged for not collecting VAT. It could get expensive.
If you end up paying tax in the UK you are right that you can claim a foreign tax credit in Canada. Only the income tax though, not penalties, interest or VAT.
As I mentioned, getting an idea of how HMRC will view such an arrangement is the key for the moment. It is not a problem in Canada.
Tax residency is most important because you pay tax on your world-wide income in the country where you are tax-resident. In other countries you only pay tax on income that is sourced in that country. If you have only one source of income this is less of an issue.
Now that I understand your situation a bit better I think you are probably on the right track. You can file tax returns as a self-employed person in Canada. Business income in the UK earned by a resident of Canada, who does not operate from a permanent establishment in the UK, should not be taxed in the UK. However, it puts your employer in a bit of a spot.
If HMRC determine that you are still a UK resident, and your relationship is as an employer/employee then your "employer" will be on the hook for the tax/NI they should have deducted. If they determine that you are self-employed but still resident in the UK you might be penalized for not paying tax/NI in the UK and not filing returns. You will probably get dinged for not collecting VAT. It could get expensive.
If you end up paying tax in the UK you are right that you can claim a foreign tax credit in Canada. Only the income tax though, not penalties, interest or VAT.
As I mentioned, getting an idea of how HMRC will view such an arrangement is the key for the moment. It is not a problem in Canada.
May 12th 2013 | 11:39 am
#28
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
The problem is not being tax-resident in Canada as the CRA will be more than happy to process your return and relieve you of your hard earned. It is with the UK letting you go.
Tax residency is most important because you pay tax on your world-wide income in the country where you are tax-resident. In other countries you only pay tax on income that is sourced in that country. If you have only one source of income this is less of an issue.
Now that I understand your situation a bit better I think you are probably on the right track. You can file tax returns as a self-employed person in Canada. Business income in the UK earned by a resident of Canada, who does not operate from a permanent establishment in the UK, should not be taxed in the UK. However, it puts your employer in a bit of a spot.
If HMRC determine that you are still a UK resident, and your relationship is as an employer/employee then your "employer" will be on the hook for the tax/NI they should have deducted. If they determine that you are self-employed but still resident in the UK you might be penalized for not paying tax/NI in the UK and not filing returns. You will probably get dinged for not collecting VAT. It could get expensive.
If you end up paying tax in the UK you are right that you can claim a foreign tax credit in Canada. Only the income tax though, not penalties, interest or VAT.
As I mentioned, getting an idea of how HMRC will view such an arrangement is the key for the moment. It is not a problem in Canada.
Tax residency is most important because you pay tax on your world-wide income in the country where you are tax-resident. In other countries you only pay tax on income that is sourced in that country. If you have only one source of income this is less of an issue.
Now that I understand your situation a bit better I think you are probably on the right track. You can file tax returns as a self-employed person in Canada. Business income in the UK earned by a resident of Canada, who does not operate from a permanent establishment in the UK, should not be taxed in the UK. However, it puts your employer in a bit of a spot.
If HMRC determine that you are still a UK resident, and your relationship is as an employer/employee then your "employer" will be on the hook for the tax/NI they should have deducted. If they determine that you are self-employed but still resident in the UK you might be penalized for not paying tax/NI in the UK and not filing returns. You will probably get dinged for not collecting VAT. It could get expensive.
If you end up paying tax in the UK you are right that you can claim a foreign tax credit in Canada. Only the income tax though, not penalties, interest or VAT.
As I mentioned, getting an idea of how HMRC will view such an arrangement is the key for the moment. It is not a problem in Canada.
May 12th 2013 | 1:56 pm
#29
Born again atheist
Joined: Jul 2005
Posts: 30,259
From: Europe (to be specified).
May 12th 2013 | 7:48 pm
#30
Thread Starter
Forum Regular
Joined: Dec 2012
Posts: 38
Re: Self Employed v Employed
I agree a clean break would have been good but is also an opportunity for me to be mortgage free( this is my only debt) and to buy a house outright in Canada which at my age would be a great position to be in.
I'm sure I'll work something out.
