Tax-pensions-lump sum-residency-stuck!!!
 

Ok, as the title says a plea for anybody wh would be knid enough to offer some real advice.

I have my PR, got it in March 2007, married to a local. Moved to Canada Sep 2008, slight twist as I actually got posted here with the UK military on a 3 years overseas tour. I dont have a SIN card, I am paid in GBP and pay tax in the UK and I am now technically here under the Visiting Forces act. That said the days I am doing here (2.5 years) so far are being credited towards my PR.

Now the stumbling block I intend to retire from the military at the end of this tour and after 26 years I will receive a pension and a lump sum. I have acquired some considerable leave in which I wish to take here in Canada readjusting and job searching etc.

I have been told that if I remain here during this period I will pay 43% tax on my lump sum as it will be seen as worldwide earnings!!!! If i have so much as a driving license or Canadian credit card then that will prove my residency status or my intent.

I think I have to rip everything up go home at the end of my 3 year military tour, leave the military, collect my pension and come back and start again. A lot of time and effort and also time I would like to use constructively sorting out my future here In Canada.

Another slight twist is that my wife (Canadian) now works here, is set up nicely with her company and our 3 year old has finally got in to a good daycare.

Do they also have to uproot with me just to sit in the UK for a few months to avoid canadian tax only to return and start again.

Advice etc would be very much appreciated as I am under strain and in a dilemma.

Many thanks.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I cannot give you an answer, but, having worked overseas most of my life, I can tell you that in situations such as this, it is well worth paying for professional advice. Given the amounts involved, the cost of a consulation with an accountant/tax advisor is insignificant and you will more than likely get definitive and accurate answers to your questions. This is what I have done in the past and it has worked for me. It also saves you looking over your shoulder at the taxman in the future.

It is often hard to get a conclusive answer to questions such as yours on an open forum that you can take to the bank because a person giving advice would need to know most of your circumstances and details to provide an accurate answer that you can live with.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

You can defer the tax on a lump sum pension by transferring it directly to an RRSP - you would then only pay tax when you take an income from the RRSP, which, because you would likely have a smaller annual income at that time, would be taxed at a lower rate and would have benefitted from tax-free growth whilst in the RRSP. The transfer must be done directly from your current pension provider rather than taken by you and immediately re-invested.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I would guess he can't do that as he's never had any Canadian income.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Hello, don't know if this is much help but I have 5 months left in the RAF and regards to the lump sum and pension the Canadian Tax man (1-613-952-3741) told me that if I receive this money before I come over and establish 'residential 'ties in Canada, ie home , kids in school etc then they don't care (his words), so it seems that you might have to spend your terminal leave visiting folk in Uk then as soon as your pension hits your bank fly back

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Often wondered about this dilemma myself. You're certainly not the first person who's faced this scenario. Try speaking to the former BATUS Wksp 2IC who's just retired out there; he must have broached this problem?

Re: Tax-pensions-lump sum-residency-stuck!!!
 

There's alot been discussed about this on here. We are almost in the same position.

My OH is in the RN, due to leave 13th Jan 2012, we have PR already and me and the kids were going to move over in May 2010 but were advised not to due to the tax issue, so we have delayed our move until his lump sum gets paid into the bank, then we are off. There are ALOT of people in this situation.

I will try and look for a thread later. Try this thread, it's a bit old but I think the info is still the same http://britishexpats.com/forum/showt...=453109&page=6

Kaz

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Same here :thumbup:

Re: Tax-pensions-lump sum-residency-stuck!!!
 

If you are resident in the country when your lump aim is paid to you it is world wide income and subject to tax. However if you have no house you are paying tax in UK you can claim that you are still resident in UK.on your first Canadian tax return you have to say what day you became tax resident in Canada ie the date you arrived. I lost all of my accumulated leave and resettlement which I was going to use settling into Canada because of the same problem. Either go back to UK and re enter Canada after it is safetly in your English bank or take your chance and don't declare it. You don't need to spend all your leave in UK just the portion when it is paid. Then enter Canada and declare that date as the day you took up residency. If you already have a house in Canada then you will have to pay the tax!

Re: Tax-pensions-lump sum-residency-stuck!!!
 

There is not an easy out that I am aware of. As long as you are serving in the British forces you are deemed a non-resident for tax purposes. However, once you retire the usual test for tax-residency applies. If you have a home complete with wife and child in Canada then it is highly likely that you will be considered as tax-resident here. To avoid it you will have to prove you have a permanent home in another country and that the "centre of your vital interests" is in another country.

If you receive your lump sum after you retire from the military it is almost certainly taxable in Canada. IMO if you want to avoid this you will have to move your family back to to UK immediately that you retire and sever all your (and their) residential ties with Canada. This does not stop you moving back again sometime in the future.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Certainly an option for a member of the Canadian forces.

If there is an choice in the UK military pension to forgo the lump sum in favour of a higher pension then this pension can be transferred into a RRSP AFAIK, but as you say, it is still taxable when withdrawn. However, with some planning you pay tax at the time and rate of your choosing. It doesn't help if you are relying on the lump sum to help you settle.

The problem is that there is simply no concept of a tax-free lump sum in Canadian tax law.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Thanks for all the replies so far, I think I know what the answer is going to be.

John009 do you have any details on a good tax consultant by chance?

Thanks.

Lamin

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I do not know the amount of your lump sum, nor do I need to know.

As much as it sticks in the throat to pay (any!) tax, what is the likely cost of doing the move back to the UK and then back again, including any realtor/set up costs? :eek:

Re: Tax-pensions-lump sum-residency-stuck!!!
 

When is the lump sum actually paid? On the day of retirement, or some time after that?

Re: Tax-pensions-lump sum-residency-stuck!!!
 

The lump sum that I am expected to handover is in the region of 23,000 GBP.

More than the cost of a move back.

Whats more is, I know it is my choice to move to Canada but why should I give them some of my nest egg which I busily acquired in the likes of Iraq and Afghanistan spending months away from family etc.

I have no issues with tax and will gladly pay what % I have to on every $ I earn in Canada, but not before.

The lump sum is paid I think about 10 days or so after your last paid day in the service.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I hope my last post didn't come over as flippant etc, just that I am finding things a little frustrating and beginning to wonder if either Canada or my career were the right choice.

Thanks for the advice, support and interest, it is appreciated.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Have you checked the posibility of spending your last 6 months in the UK.it is becoming more difficult but is still possible especally if your boss is sympathetic.you could then spend you resettlement in Canada looking for a job whilst still offically in the UK.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

At 1.6 that will be $36,800. You can split pension earnings between you and your spouse for tax purposes so it will be $18,400 each.

The amount of tax you will actually pay depends on your other earnings for the year, the province you live in, and how much of the year you were tax resident in Canada. You could be looking at a tax bill of between $2,000 and $4,000 on your half, your wife possibly around $5,500 (all very approximate numbers as I don't know the rest of your circumstances).

The tax you will need to pay will likely be around $10,000 in the above scenario. That is what you have to compare with the cost of moving back to the UK.

Your wife may be able to shelter some or all in her RRSP. If she has $18,400 in contribution room she could shelter it all there and pay no extra tax this year. Once you start work here you will accumulate RRSP room and then you can contribute your share of the lump sum and get back the tax you paid.

Granted that RRSPs are a way of deferring tax, not eliminating it, but with some planning you can substantially reduce the overall amount of tax you would otherwise pay.

There is an old saying about tax planning: never do anything just to avoid tax, do what you want to do and then find a way to minimize tax.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Cheers for your help JonBoy. My figure might of been misleading as that is the figure I was told I would have to pay. My actually pension is actually just over double that.

Thanks once again.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

How will the authorities in Canada know unless you tell them? EG I still have my UK bank acct and I use my Dads address for my UK mail, so if I don't tell CRA how will they know?

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Winston- Hiya pal.

Your suggestion is certainly feasible as I actually have just over 4 years left to serve (if I want it) when I offically leave here.

My idea though was to put my papers in at tourex then spend the 5 months I have accured "tramping the streets" over here job hunting and resettling etc.

In theory I could get posted back, take up a UK address then go straight on holiday to Canada.

As long as I show no real connections etc and go back to the UK to demob and collect the money.

Annoying as you know, would love to get ahead of the game and swing it to my advantage.

Grateful for any other suggestions especially if you hear of any tips on your shop floor.

Lamin

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I agree with your idea in principle, however what you are suggesting is tax evaision if the CRA did find out he could go to prison or have his PR revoked. It may not go that far but is it worth the chance. There is a tax treaty between the countries so they are duty bound to provide requested information on an individual if necessary.
Pays your money takes your chance!

Re: Tax-pensions-lump sum-residency-stuck!!!
 

lamin
Have canvased the floor here about a dozen people where in the same boat as you, myself included. Vast majority were able to negotiate a start date after pension was paid into UK bank. Company has a relocation package so it is not such a big deal here to stay in UK and burn resettlement and terminal leave before entering Canada.couple quoted the tax treaty to H&R block and did not pay anything not sure if this on pension or lump sum. Does not sound legal suspect it is a mistake by h&r block that people are just keeping quiet about.if you want more info pm me

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Cheers Winston, I will be in touch.

Thanks for asking about for me.

Lamin

Re: Tax-pensions-lump sum-residency-stuck!!!
 

My OH is in a similar situation. We received PR cards when we landed in August 2010. However, had to come back to UK to sell house & await OH finishing work. We are planning on arriving back into Canada next Summer after the payment of lump sum. We were under the impression that we wouldn't be classed as Tax Residents, as still living & working, paying tax in UK. However, we did open a bank account and put a couple of thousand dollars in the a/c to make it easier when we first came back. Worried now that having a bank a/c that just sits doing nothing, will make us tax residents. Does anyone know whether this is the case? We only arrived and got PR and SIN cards, own no property in Canada and have never worked there. Could anyone advise? Many thanks.:unsure:

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Don't worry the CRA has a few critera for being a tax resident. Opening a bank account does not automatically count you as tax residents. When you file your first tax return just state the day you arrived to stay in Canada. That will then become the date you become tax resident. If you are still in UK and that is where your primary residence is then that is basically the country you are tax resident in. Pm me if you want more info or answers to any OTher questions. I think I have just been chatting to your oh on be ns website.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Thank you so much for that information. A great weight off my mind!! I will probably take you up on your offer of PM. I have a head full of constant questions, and the fact that you are in NS is a huge bonus. Pretty good chance that you have been chatting to my OH (Tony) - we both try and gather information & then compare notes, at the end of the day. Thanks again. Mandy

Re: Tax-pensions-lump sum-residency-stuck!!!
 

ok I used to be "fedupwithwaiting" and you'll see from my previous threads we went through this in 2007. My hubby was a Squadron Leader in the RAF for 20 years. We got our PR in the May 07 and we were activating it July 07.

We had our flights, hotel, car hire, rental, goodbye parties done and were supposed to fly out 6th July. OH spoke (as much as you can) to the dept that does the final pay out pay roll. They assured him 100% we would be getting that money paid in on the 5th in which case after numerous letters, phone calls, and at the time I worked for one of the top International Tax Lawyers in the Country. We were told time and time again this money is a tax free lump sum as long as you are resident of the UK when you receive it. Obviously even if you are on a trans atlantic flight you are not a resident of the UK.

Needless to say the money didn't come in. So we sat in a hotel room in London with 8 suitcases around us and every day for a week my hubby checked his online bank to see the payment. Eventually on July 13th 07 he woke me at 11am to say the money had been paid in. We woke the kids, got dressed, he re booked the flights and we raced like hell to get to Heathrow for the 2.30pm flight! We made it and know now it was the best thing to do. It is not worth losing 40% of your hard earned lump sum to the Canadian Tax Man. Whatever you do I urge you to take heed and learn from us.

I haven't read through all the other posts but just had to send you this quickly before I ran out the door this morning. Best of luck with everything:thumbsup:

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Err because every tax return you ever signed in the UK will say you give you full authority for other countries to make further investigations on you. This will include checking your bank accounts, mail boxes, employers. This is tax evasion not tax planning...very bad idea. Any payments over $10,000 into your bank account are always reported to the tax man I believe so its never worth the risk.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Not a good idea because he will pay tax when he withdraws the money if he's earning that could be at the higher rate of 40% and you can only make withdrawals once its been in the account untouched for 3 years. His lump sum is tax free completely as long as he is resident in the UK at the time of receiving it.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I shall take everything you say on board. We certainly don't want to get stung for tax. We will have to arrange flights for after payment is made. According to the literature supplied to us so far, final payment can be made "up to" 30 days after final day of work, but on most occasions it is paid within 7 days. Whether this is working days it does not say. We were planning on purchasing flights early, so that we knew that was something else crossed off our list - however, it is probably more financially viable to pay more for air tickets + not get taxed, rather than cheaper air tickets + tax on lump sum. Thank you for letting me know how it worked out for you - it certainly makes me more wary about the 7 day window, which we were working on.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

If it is paid into a QROPS the funds will have to remain there for 5 years from that date one first becomes a tax resident in Canada to avoid having to pay tax upon it in the UK. I am not sure where you are getting 3 years from.:confused:

Re: Tax-pensions-lump sum-residency-stuck!!!
 

I take it he wasn't a very good one if he didn't obtain a promotion in 20 years:p

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Might be worth purchasing flights through a scheduled airline they can be changed much easier than a charter airline. We booked with air Canada as they allowed for a free change of days if necessary. Check them out as you might be able to book early and still have option to change days if necessary.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Thanks. Good advice. We will explore all avenues & see how it goes. Cheers Mandy

Re: Tax-pensions-lump sum-residency-stuck!!!
 

Can I just clarify one more thought that I have had. If we ensure that the lump sum is received into our UK bank account before becoming tax residents in Canada, so that it remains tax free. Would there then be no issue on transferring the money to a Canadian account? I would imagine that it wouldn't matter whether this arrives a few days or months after us?:unsure:

Re: Tax-pensions-lump sum-residency-stuck!!!
 

That is correct. You would have to tell bank or exchange facility where you got money but that is just for UK money laundering purposes. CRA have no interest as long as it can trace it when it arrives in Canada

Re: Tax-pensions-lump sum-residency-stuck!!!
 

not a problem, in fact we booked our rate in advance and paid a deposit. So we knew the money was coming in July and actually exchanged in the April time.

Re: Tax-pensions-lump sum-residency-stuck!!!
 

3 years we were told by our Canadian FA. However if you say it is 5 years then so be it. But my point here was not the length of time it is tied up but the fact that it will be taxed on withdrawal. Quite frankly I was just trying to help out another military family on my way rushing out the door!!

Re: Tax-pensions-lump sum-residency-stuck!!!
 

does anyone know if you chose to have the lump sum paid in to a Locked in Retirement account, would it still be taxed?