marcustandy

I really should pay more attention to threads that I start!

agr

This has been my approach. My tax hygiene includes checking all the indicators of tax residency from the CRA website (eg. bank accounts, property, professional body membership etc) and making sure I don't have any of them (except landed PR). There are several fallback arguments, that have been covered in threads various, that I hope I will never need! The latest is my pension award letter, which clearly states that the pension and gratuity are awarded on my first day as a civilian. That it takes a few weeks to get the £ is merely admin delay - my personal balance sheet shows it as an asset on the day of award.

marcustandy

Thanks for that. A key bit of info that I will be utilising!

agr

I do not see how this can be true. None of my 280 monthly pay statements showed any contribution to my lump sum, and I have not paid any tax that wasn't on a pay statement. Furthermore, if tax had already been paid, the armed forces would not be able to describe it as a 'tax-free lump sum' in their recruiting brochures!

woz718

What we need to remember is that this question is pertinent only to those individuals who will actually be in Canada at the time the gratuity is paid. If you receive your gratuity before you move to Canada then there is not an issue and it would not be classed as world-wide income as you would not be considered resident for tax purposes. I say this as I believe Mrs Miggins was not living in Canada when the gratuity was paid. I work with our Education and Resettlement Officer and he has now also contacted an Lawyer in Canada to seek out this information, so hopefully with the amount of people looking in to it, someone will come up with a response. They key really though is to getting that response in writing.

regards

Wozzie.

singingringingtree

In our circumstances, how I read it deduced from my correspondence with Steven English (international tax consultant mentioned earlier), is that we can all 'land' in the summer, rent, get kids into school to start Sept (with our PR cards), then OH can return to UK after couple of weeks and works rest of his service until he retires in the Nov and gets lump sum, then he comes over perm.

During the time he is back in UK working, he is paying tax in UK and is therefore not a Canadian resident for tax purposes. Me and kids will be in Canada, but he will be in UK when when he gets his lump sum so it should be tax-free. Does that sound right?

agr

This may well mean that Mrs M's experience will not be relevant to some readers, but we need to be careful about generalising. It is quite possible to be a tax resident whilst not actually living in Canada (the CRA specialises in this to prevent Canadians in the US from avoiding Canadian tax). Hence the need for tax hygiene after gaining PR.

This is a very helpful step - thank you.

agr

Not to me, I'm afraid. Paying tax in UK doesn't necessarily exempt him from Canadian tax residency (although working for the UK government might). The CRA rules emphasize the location of home and family in determining tax residency. If I were in your shoes, I would ask your tax adviser to gain CRA agreement to the plan from the International Tax Services Office - see para 28 of this CRA bulletin.

singingringingtree

Thanks for this useful advice agr.

JonboyE

It sounds a risky strategy to me too. If singingringingtree lands with her family and OH and sets up a home in Canada then the whole family would normally be considered tax resident in Canada from that point on. The location of home and family is the first, and most decisive, piece of evidence the tax people look at.

However, a military person is always tax resident in the country they are serving and, as the tax treaty works, you cannot be tax resident in Canada and the UK at the same time. So OH remains tax resident in the UK.

The problem is that when her OH is discharged he will become tax resident in Canada, unless he can present some compelling evidence to the contrary. The only compelling evidence I can think of right now is that they have separated and he has established his own home in the UK.

Canadian soldiers receive a retiring allowance when they are discharged but this is taxable when received unless they transfer it to an RRSP (so the tax is deferred until they draw on it). A new resident to Canada will have to earn RRSP contribution room but there could be the opportunity in future years to get back some of the tax paid on the lump sum.

marcustandy

Just in case some of the readers haven't seen this extract (below) from this website.

It doesn't inspire much confidence.

JonboyE

And if you want your confidence lowered even further this is from IT499R:

Foreign superannuation or pension plans normally do not qualify for
registration under the Income Tax Act. A pension received by a resident
of Canada out of an unregistered foreign superannuation or pension plan
is subject to tax in the same way as a pension received from a source
in Canada under subparagraph 56(1)(a)(i) unless exempted by the
provisions of a tax treaty.

Some tax treaties, such as the Canada - Germany treaty, specify that some parts of German pensions are not taxable in Canada. The Canada - UK treaty does not.

I am hesitant to be dogmatic about this because some of the wording in section 56 (1)(a)(i)(C.1) suggests that a foreign pension may not be taxable in Canada if it is not taxable if the recipient was resident in that foreign country. However, the interpretation bulletins represent the CRA’s interpretation of the law and their implementation policy. They are going to tax it and unless you are prepared to take the matter up in a Tax Court you have to live with the CRA’s interpretation.

dinger24

Hi all
Well done another great thread. However do we have a clear answer yet?
I am still playing it safe and waiting until it is pay day then movong unless we can get a proffesional answer posted on here.
I have to say that it is great to read these posts from people in/out of the army it inspires confidence to me and others who are sometimes losing the "bottle" so to speak.
Cheers

Souvenir

Possibly worth noting on that point is that sticking the gratuity into an RRSP is completely different to regular RRSP contributions. It is not related to normal limits, allowances etc.

JonboyE

This much is certain:

1) If you are not tax resident in Canada when you receive your lump sum then the CRA can't tax it (and being a tax resident is not the same thing as being a permanent resident).

2) If you are tax resident in Canada when you receive your lump sum then the CRA will tax it.