stokesey

Hi - I'm planning on acivating PR in a few weeks and then returning to the UK to tie up the loose ends etc....

My question is are there any tax implications in Canada if the value of my assetts held in the UK rise during this period due to exchange rate / stock market fluctuations, I will be paying tax in the UK during this time.

Many thanks,

Stuart.

JonboyE

No. There are no tax implications if you just visit Canada to activate your PR and have a short vacation. Resident for immigration purposes is not necessarily the same as resident for tax purposes. The tax implications start when you move here to live.

stokesey

Superb, thank-you very much, that's one less thing to worry about!!

stokesey

Hi - another question, If I move to Canada permanently in July (leaving my cash assets in the UK) and then exchange my funds from £ to $ in September, are there any tax implications I should be aware of?

Thanks.

gryphea

I think so but JBE will know for sure. I think the day you become tax resident your assets get virtually converted to dollars and any gain from there is taxable.

in other words if the exchange rate rises signficantly between your residency date and when you bring cash over you get taxed on the difference. Of course having the exchange rate rise would be a bonus.

stokesey

What's the rate of tax (in Alberta), is it the 5% that would be applicable in this instance?

Thanks.

JonboyE

gryphea is correct.

the tax rates are here ... http://www.taxtips.ca/taxrates/ab.htm

Foreign exchange gains are taxed as capital gains.

Alan2005

I've recently wondered about savings accounts.

If I earn UK interest, however the exchange rate has moved such that it's a CAD loss - what happens? I've been assuming that there is no need to pay tax as I've been treating the savings account like any other investment and only the CAD value gain is taxable. But I'm not sure this is correct ... if it isn't I hope I don't get audited

JonboyE

Interest is taxable in the year it is earned. You would convert £ to $ using the annual average rate. Foreign exchange gains or losses are taxable in the year they are realized. Not declaring interest income because the overall value of your investment has fallen in $ terms is not correct.

It can lead to an anomaly:

01/01/x1 - buy a £10,000 5% certificate of deposit and pay $18,000.
12/31/x1 - receive £500 in interest. Average rate of 1.75 so add $875 to taxable income in Canada.
01/01/x2 - roll over certificate of deposit
12/31/x2 - receive £525 in interest. Average rate of 1.65 so add $866.25 to taxable income in Canada.
12/31/x2 - cash in certificate and receive £11,025. Exchange this to $ at 1.6 and receive $17,640.

You have been taxed on $1,741.25 of interest even though you effectively did not receive it. To rub salt into the wounds, the FX loss is a capital loss and cannot be deducted from other income - only capital gains. If you don't have any taxable capital gains you are stuffed.

Alan2005

Well, it seems I am guilty of tax evasion. In my defense the amounts are small (cos I don't have a large sum of GBP and interest rates are crap). I probably owe the government $25 or something.