Lamin

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.

johnh009

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.

canmoreskier

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.

Alan2005

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

petesdragon

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

joepublic

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?

kazbob

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

joepublic

Same here

Winston Green

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!

JonboyE

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.

JonboyE

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.

Lamin

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

ann m

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?

JAJ

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

Lamin

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.