Kryten

Think I know the answer to this question and I think it has been asked too, but I couldn't find it in a search in the forums. My wife started to receive some income from a pension last year from her employer when we lived in the UK. She received a tax free lump sum and also receives a small amount each month. She paid very little tax in the UK as the monthly amount did not take her over the basic threshold for paying any tax. And now hopefully she should have a NIL tax code after filling in all the paperwork.

I am working through our tax returns for 2022, and even though the lump sum was deemed as tax free in the UK, I assume that all the monies she received last year in relation to this pension are treated as taxable income in Canada? There is a line in Turbotax where you can enter in "Other pension income: Exempt portion", but I don't think the tax free lump sum is deemed as exempt. Can't find anything in the treaty to suggest it is.

Hemlock

Unlikely that it is tax free. However, where there is uncertainty best to consult an accountant to be sure. My accountants saves me more than they cost.

jeremy brewer

Hi
Think you will find that although it is tax free in uk it is taxable here in canada
that is what happened to me
my pension income has been taxed every year in canada, but not in uk
cheers
J

GiantSantaCruzer

FYI - from what I've read it's taxable BUT for others in the same situation, I believe one possible way for minimizing the tax in Canada, is to pay the lump sum into an RRSP (contribution must be in the same tax year as the lump sum is received). You can then claim for a tax credit at the end of the tax year, just like any other RRSP contribution.

Obviously, this only works if you don't need (or spend) the lump sum payment, and only minimizes the tax if your tax rate is lower in retirement than when you made the initial contribution.

This is theoretical - I've not actually tried it but if I retire later this year, I'll get a decent tax free lump sum on my UK pension, so I'm keen to hear from anyone who can prove this is a viable technique (and hopefully I don't need to use the lump sum payment immediately)

Kryten

A follow up on this. I spoke with someone at the CRA today, and asked the question and the response I got was what we all expect, that it is taxable income in Canada. He said the UK tax free portion is deemed as a tax benefit in the UK. The tax treaty covers double taxation, i.e. stops you paying tax twice, but it doesn't cover the carrying over of any tax benefit.