Tax-pensions-lump sum-residency-stuck!!!
Sep 25th 2011, 5:23 pm
#46
BE Enthusiast
Joined: Nov 2004
Location: Looe, Cornwall
Posts: 674
Re: Tax-pensions-lump sum-residency-stuck!!!
You could always stand back and look at the benefits you get from being a Canadian citizen/permanent resident and living in Canada ... the flipside of this is that you get to pay Canadian taxes. The UK "tax free lump sum" is very generous, considering that the contributions made were not taxable in the first place, however it appears that Canada does not replicate this in its tax code.
Take professional tax and investment advice before making any decision, but you options appear to include:
1. Take the lump sum, pay the tax.
2. Take the lump sum, defer all or part of it into a Canadian RRSP (to the extent you're eligible to contribute). You should be able to select conservatively invested funds so you don't "lose the lot" but you will probably pay tax in future when you draw down your RRSP. But perhaps not at such a high rate.
3. Abandon your residence in Canada and return to the UK before the lump sum is paid. This would have to be a genuine severing of residential ties, not just a short term expedient.
4. Take the pension instead of the lump sum. You'll pay tax on the income but perhaps not always at such a high rate if your other income reduces. Also, if you are in good health and expect to live a reasonable lifespan, you might get more dollars in the long term that way. Of course, you are exposed to the risk of your pension fund running out of money - your employer is supposed to back this up but if they go bankrupt or something, then that layer of protection no longer exists. You're also exposed to more risk on the sterling exchange rate, long term. Another risk to consider, and you'd need professional advice to know if it's real, is that company pensions in payment may be more secure than accrued pensions not yet in payment.
Take professional tax and investment advice before making any decision, but you options appear to include:
1. Take the lump sum, pay the tax.
2. Take the lump sum, defer all or part of it into a Canadian RRSP (to the extent you're eligible to contribute). You should be able to select conservatively invested funds so you don't "lose the lot" but you will probably pay tax in future when you draw down your RRSP. But perhaps not at such a high rate.
3. Abandon your residence in Canada and return to the UK before the lump sum is paid. This would have to be a genuine severing of residential ties, not just a short term expedient.
4. Take the pension instead of the lump sum. You'll pay tax on the income but perhaps not always at such a high rate if your other income reduces. Also, if you are in good health and expect to live a reasonable lifespan, you might get more dollars in the long term that way. Of course, you are exposed to the risk of your pension fund running out of money - your employer is supposed to back this up but if they go bankrupt or something, then that layer of protection no longer exists. You're also exposed to more risk on the sterling exchange rate, long term. Another risk to consider, and you'd need professional advice to know if it's real, is that company pensions in payment may be more secure than accrued pensions not yet in payment.
Oct 2nd 2011, 6:44 pm
#47
Forum Regular
Joined: Oct 2011
Posts: 32
Re: Tax-pensions-lump sum-residency-stuck!!!
You're barking mad mate. If you think that anyone would consider paying half of their hard earned gratuity to a country who you have never been a burden on, used any medical services, unemployment benefit etc - then you are delusional.
I am in the same boat and am going to avoid paying a massive wedge, albeit above board.
Ta
I am in the same boat and am going to avoid paying a massive wedge, albeit above board.
Ta
Oct 3rd 2011, 12:44 am
#48
Retired
Joined: Apr 2004
Posts: 34,649
Re: Tax-pensions-lump sum-residency-stuck!!!
You're barking mad mate. If you think that anyone would consider paying half of their hard earned gratuity to a country who you have never been a burden on, used any medical services, unemployment benefit etc - then you are delusional.
I am in the same boat and am going to avoid paying a massive wedge, albeit above board.
I am in the same boat and am going to avoid paying a massive wedge, albeit above board.
Oct 3rd 2011, 4:04 am
#49
Forum Regular
Joined: Oct 2011
Posts: 32
Re: Tax-pensions-lump sum-residency-stuck!!!
OK - to answer your slightly sarcastic point there, that is exactly what I meant - ensuring that I am not a Canadian tax resident until after I receive my gratuity.
I have many options and am happy to explain that I still think ex-forces individuals must do what they can to ensure they do not pay tax on a benefit they have worked their whole military career for yet stay within the boundaries of the law.
Thanks and goodnight.
I have many options and am happy to explain that I still think ex-forces individuals must do what they can to ensure they do not pay tax on a benefit they have worked their whole military career for yet stay within the boundaries of the law.
Thanks and goodnight.
Oct 3rd 2011, 5:05 pm
#50
BE Enthusiast
Joined: Nov 2007
Location: Alberta
Posts: 660
Re: Tax-pensions-lump sum-residency-stuck!!!
do let us know when you find out what the loophole is? quite a lot of us would be very glad to find out, having failed singularly to do so to date. it might save us all a ^lot^ of money, as you know.
i asked on the other thread, so apols, but do you currently file a non-res tax return on your house? your wife files a res return? or is the house just in her name?
you might get away with it if the house is owned just by her and the mortgage is in her name etc... and you don't come out until waaay after the money hits the bank. and you can prove that you have a home in the uk and are 'ordinarily resident' in it until that point. i'm assuming you live in the mess, and that you will be moving into temp accom (hotel etc?) for the brief period in between leaving/ helping outn your mate, and then joining your wife?
i would be looking to put more secure roots down in the uk to prove my status there if i were you. and disentangling myself from any canadian ties.
apols if wrong and you also own own house in uk.
but i'm not a tax expert, and i have singularly failed to find a loophole that fit our situation.
i asked on the other thread, so apols, but do you currently file a non-res tax return on your house? your wife files a res return? or is the house just in her name?
you might get away with it if the house is owned just by her and the mortgage is in her name etc... and you don't come out until waaay after the money hits the bank. and you can prove that you have a home in the uk and are 'ordinarily resident' in it until that point. i'm assuming you live in the mess, and that you will be moving into temp accom (hotel etc?) for the brief period in between leaving/ helping outn your mate, and then joining your wife?
i would be looking to put more secure roots down in the uk to prove my status there if i were you. and disentangling myself from any canadian ties.
apols if wrong and you also own own house in uk.
but i'm not a tax expert, and i have singularly failed to find a loophole that fit our situation.
Oct 3rd 2011, 5:22 pm
#51
Forum Regular
Joined: Oct 2011
Posts: 32
Re: Tax-pensions-lump sum-residency-stuck!!!
Hi again Deb.
Apart from the house, which we are renting, which I believe is proof on non-residency (in that house) we have no ties with Canada at present. I am still serving and we plan now to stay in Uk til after I get out. In fact I have a short, well paid job lined up for when I do - even more dosh for me!
My wife landed in Canada in 2008 when we went on holiday - this does not affect us either as we are still at the moment UK tax payers.
Apart from the house, which we are renting, which I believe is proof on non-residency (in that house) we have no ties with Canada at present. I am still serving and we plan now to stay in Uk til after I get out. In fact I have a short, well paid job lined up for when I do - even more dosh for me!
My wife landed in Canada in 2008 when we went on holiday - this does not affect us either as we are still at the moment UK tax payers.
Oct 3rd 2011, 5:31 pm
#52
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,682
Re: Tax-pensions-lump sum-residency-stuck!!!
As long as the house is rented on an arm's length basis (i.e. not to friends or family) it is not available for your use and therefore not a significant residential tie to Canada.
Oct 3rd 2011, 5:37 pm
#53
BE Enthusiast
Joined: Dec 2008
Location: Ottawa
Posts: 487
Re: Tax-pensions-lump sum-residency-stuck!!!
Residency - Individuals
Under Canada's tax system, your liability for income tax in Canada is based on your status as a resident or non-resident of Canada. Residency must be established before your tax liability to Canada can be determined.
A determination of residency can only be made after all the factors have been considered. Your circumstances have to be reviewed in their entirety to get an accurate picture of your residency.
The residential ties you have or establish in Canada are a major factor in determining residency. Residential ties to Canada can include:
a home in Canada;
a spouse or common-law partner (see the definition in the General Income Tax and Benefit Guide) or dependants in Canada;
personal property in Canada, such as a car or furniture;
social ties in Canada;
economic ties in Canada.
Other ties that may be relevant include:
a Canadian driver's licence;
Canadian bank accounts or credit cards;
health insurance with a Canadian province or territory.
Residential ties that you maintain or establish in another country may also be relevant to residency.
Under Canada's tax system, your liability for income tax in Canada is based on your status as a resident or non-resident of Canada. Residency must be established before your tax liability to Canada can be determined.
A determination of residency can only be made after all the factors have been considered. Your circumstances have to be reviewed in their entirety to get an accurate picture of your residency.
The residential ties you have or establish in Canada are a major factor in determining residency. Residential ties to Canada can include:
a home in Canada;
a spouse or common-law partner (see the definition in the General Income Tax and Benefit Guide) or dependants in Canada;
personal property in Canada, such as a car or furniture;
social ties in Canada;
economic ties in Canada.
Other ties that may be relevant include:
a Canadian driver's licence;
Canadian bank accounts or credit cards;
health insurance with a Canadian province or territory.
Residential ties that you maintain or establish in another country may also be relevant to residency.
Oct 3rd 2011, 5:46 pm
#54
BE Enthusiast
Joined: Feb 2008
Location: British Columbia, Canada
Posts: 428
Re: Tax-pensions-lump sum-residency-stuck!!!
If anyone finds an answer let me know?????
I have been pondering this one for the past 5 years. I have 1 1/2 more years until my UK company pension pays out a nice lump and hate the tought of giving 43% to the Canadian tax man. Thinking about not taking the lump sum and taking additional pension. Not sure this is a good idea in the UK ; just received a pension update from my ex UK company and the fund in 2010 was roughly 30% underfunded to meet its future liabilites and its one of the most profitable and stable businesses in the UK. God knows what the deficit is now after the latest economic turmoil
Dont want to put money in RRSP's either - could end up losing the lot!!!! Cash seems a safe option nowadays.:
I have been pondering this one for the past 5 years. I have 1 1/2 more years until my UK company pension pays out a nice lump and hate the tought of giving 43% to the Canadian tax man. Thinking about not taking the lump sum and taking additional pension. Not sure this is a good idea in the UK ; just received a pension update from my ex UK company and the fund in 2010 was roughly 30% underfunded to meet its future liabilites and its one of the most profitable and stable businesses in the UK. God knows what the deficit is now after the latest economic turmoil Dont want to put money in RRSP's either - could end up losing the lot!!!! Cash seems a safe option nowadays.:The RRSP is the vehicle which shields the growth of your pension funds from tax. It is the funds(s) that you place your money in within the RRSP that will determine the level of risk you will take with your money. There are many fund options that you will have available within an RRSP and options that are not stock market linked. There are cash funds ( although not advisable for medium/long term growth ) and bond funds that are low risk investments. In many low risk bond funds over the last ten years you could have averaged around 4% after charges. Granted this isnt going to set the world on fire but if you are risk averse this is a very good option based on the fact that it will have also been shielded from tax within the RRSP.
There are also guaranteed options available that are stock market linked that will offer growth when the markets are rising but will also offer the security of a guarantee at maturity.
Furthermore there are guaranteed income for life options that will provide a comparison with final salary schemes, whilst providing you with full control over your pension funds.
The RRSP may not be the answer, everybody's circumstances are different, but with sensible planning it is definitely an option that should be compared and considered.
Oct 3rd 2011, 5:54 pm
#55
BE Enthusiast
Joined: Nov 2007
Location: Alberta
Posts: 660
Re: Tax-pensions-lump sum-residency-stuck!!!
Residency - Individuals
Under Canada's tax system, your liability for income tax in Canada is based on your status as a resident or non-resident of Canada. Residency must be established before your tax liability to Canada can be determined.
A determination of residency can only be made after all the factors have been considered. Your circumstances have to be reviewed in their entirety to get an accurate picture of your residency.
The residential ties you have or establish in Canada are a major factor in determining residency. Residential ties to Canada can include:
a home in Canada;
a spouse or common-law partner (see the definition in the General Income Tax and Benefit Guide) or dependants in Canada;
personal property in Canada, such as a car or furniture;
social ties in Canada;
economic ties in Canada.
Other ties that may be relevant include:
a Canadian driver's licence;
Canadian bank accounts or credit cards;
health insurance with a Canadian province or territory.
Residential ties that you maintain or establish in another country may also be relevant to residency.
Under Canada's tax system, your liability for income tax in Canada is based on your status as a resident or non-resident of Canada. Residency must be established before your tax liability to Canada can be determined.
A determination of residency can only be made after all the factors have been considered. Your circumstances have to be reviewed in their entirety to get an accurate picture of your residency.
The residential ties you have or establish in Canada are a major factor in determining residency. Residential ties to Canada can include:
a home in Canada;
a spouse or common-law partner (see the definition in the General Income Tax and Benefit Guide) or dependants in Canada;
personal property in Canada, such as a car or furniture;
social ties in Canada;
economic ties in Canada.
Other ties that may be relevant include:
a Canadian driver's licence;
Canadian bank accounts or credit cards;
health insurance with a Canadian province or territory.
Residential ties that you maintain or establish in another country may also be relevant to residency.
they just need to make sure it stays that way until all the gratuity payments are done.
Oct 3rd 2011, 9:21 pm
#56
BE Enthusiast
Joined: Dec 2008
Location: Ottawa
Posts: 487
Re: Tax-pensions-lump sum-residency-stuck!!!
the house he owns isn't a home, it's just an income generating property as far as he's concerned - his home is in the uk, where his wife and children reside and they both earn and go to school etc. so he files a non-res tax return for that income. her status as pr is not relevant to tax status. she isn't in the country and is tax resident in the uk.
they just need to make sure it stays that way until all the gratuity payments are done.
they just need to make sure it stays that way until all the gratuity payments are done.
If the Canadian property is his principal residence (should hardly think he could afford 2 houses on a military pay) then that could be argued by the tax man.
Also to own the house he would have needed bank accounts, social security number for a mortgage presumably and probably has credit cards this is another of their stipulations?? I don't know because the devil is in the detail.
I'm just working on what they set out as there criteria. To be honest I'm past caring at this point I've wasted enough time today on this, time to get the dinner ready!
Oct 3rd 2011, 9:42 pm
#57
Joined: Sep 2008
Posts: 12,830
Re: Tax-pensions-lump sum-residency-stuck!!!
that excerpt was taken from the Canadian Tax Revenue pages those are not my words! They say "home" not house. If you want to argue that the house is not a home but an income property then this comes under "economic ties" doesn't it?
If the Canadian property is his principal residence (should hardly think he could afford 2 houses on a military pay) then that could be argued by the tax man.
Also to own the house he would have needed bank accounts, social security number for a mortgage presumably and probably has credit cards this is another of their stipulations?? I don't know because the devil is in the detail.
I'm just working on what they set out as there criteria. To be honest I'm past caring at this point I've wasted enough time today on this, time to get the dinner ready!
If the Canadian property is his principal residence (should hardly think he could afford 2 houses on a military pay) then that could be argued by the tax man.
Also to own the house he would have needed bank accounts, social security number for a mortgage presumably and probably has credit cards this is another of their stipulations?? I don't know because the devil is in the detail.
I'm just working on what they set out as there criteria. To be honest I'm past caring at this point I've wasted enough time today on this, time to get the dinner ready!
You can live in rented property, own a house and not live in it. Your principle residence could still be the rented property. If a property is rented out at arms length it is easy to argue it as being an investment property, the 'Ordinarily Inhabited Rule' would apply. The housing unit must be "ordinarily inhabited" in the year by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child.
The measure of tax residency is more than owning a home/house, whatever you ant to call it.
Oct 3rd 2011, 9:44 pm
#58
BE Enthusiast
Joined: Dec 2008
Location: Ottawa
Posts: 487
Re: Tax-pensions-lump sum-residency-stuck!!!
You don't need a SIN to own a home, take a mortgage or get credit cards. You don't need a bank account to own a house. I had bank accounts as non resident without a SIN long before moving to Canada.
You can live in rented property, own a house and not live in it. Your principle residence could still be the rented property. If a property is rented out at arms length it is easy to argue it as being an investment property, the 'Ordinarily Inhabited Rule' would apply. The housing unit must be "ordinarily inhabited" in the year by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child.
The measure of tax residency is more than owning a home/house, whatever you ant to call it.
You can live in rented property, own a house and not live in it. Your principle residence could still be the rented property. If a property is rented out at arms length it is easy to argue it as being an investment property, the 'Ordinarily Inhabited Rule' would apply. The housing unit must be "ordinarily inhabited" in the year by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child.
The measure of tax residency is more than owning a home/house, whatever you ant to call it.
Oct 3rd 2011, 9:49 pm
#59
BE Enthusiast
Joined: Dec 2008
Location: Ottawa
Posts: 487
Re: Tax-pensions-lump sum-residency-stuck!!!
ok enough already, my curry needs stirring!
this is a link to the page I went by 5 years ago that has not changed and is still relevant, this is where my information came from:
http://www.cra-arc.gc.ca/tx/nnrsdnts...nwcmr-eng.html
Its not just one thing, its an accumulation. At the very least this is not a cut and dry case and needs special legal advice.
I'm done....
this is a link to the page I went by 5 years ago that has not changed and is still relevant, this is where my information came from:
http://www.cra-arc.gc.ca/tx/nnrsdnts...nwcmr-eng.html
Its not just one thing, its an accumulation. At the very least this is not a cut and dry case and needs special legal advice.
I'm done....
Oct 3rd 2011, 10:03 pm
#60
Joined: Sep 2008
Posts: 12,830
Re: Tax-pensions-lump sum-residency-stuck!!!
Lots of people own business interests in Canada without being tax residents. Owning a house, business interest, other property, a share in the Maple Leafs, it is unlikely on its own to cause a determination of being a tax resident. Many people own holiday homes in Canada, most will not be tax residents of Canada though.