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Technical question about tax and UK pension

Technical question about tax and UK pension

Old Oct 22nd 2021, 4:31 am
  #16  
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Default Re: Technical question about tax and UK pension

Originally Posted by Mordko View Post
Not an accountant so could be wrong but bulletin 528 is unlikely to apply to your tax free lump sum. It would have applied if you were transferring your UK pension under QROPs or whatever its called now. Unfortunately you will have to pay Canadian tax on full amount and won’t get the extra RRSP room beyond the ~27k limit.
I'm curious why you don't think it applies. For sure, there are some types of pensions it doesn't apply to (i.e. defined contributions) but mine is a defined benefit earned entirely whilst I was working in the UK (The archetypal civil service pension as was!).
IT-528 is NOT the same as a QROPS transfer. iT-528 only applies to the initial "lump sum" element of a pension that's in payment.
It isn't transferring the entire pension from one country to the other...
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Old Oct 22nd 2021, 12:11 pm
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Default Re: Technical question about tax and UK pension

Originally Posted by GiantSantaCruzer View Post
I'm curious why you don't think it applies. For sure, there are some types of pensions it doesn't apply to (i.e. defined contributions) but mine is a defined benefit earned entirely whilst I was working in the UK (The archetypal civil service pension as was!).
IT-528 is NOT the same as a QROPS transfer. iT-528 only applies to the initial "lump sum" element of a pension that's in payment.
It isn't transferring the entire pension from one country to the other...
​​​​​
I think it does not apply because its not a “Transfer of funds between registered plans”, as is the title of the bulletin.

Lump sum of 25% is your income the moment its paid into your bank account. What you do with it from that moment on is up to you. You could buy a car or a holiday. Its no longer in a pension wrapper. In fact, its irrelevant whether its DB or DC pension (both have 25% tax free lump sum option according to UK taxman). Once its paid out its not “in a plan”. And there is no way to transfer it to Canada before it leaves your plan other than QROPS (or whatever its called).
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Old Oct 22nd 2021, 4:03 pm
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Default Re: Technical question about tax and UK pension

Originally Posted by GiantSantaCruzer View Post
I'm curious why you don't think it applies. For sure, there are some types of pensions it doesn't apply to (i.e. defined contributions) but mine is a defined benefit earned entirely whilst I was working in the UK (The archetypal civil service pension as was!).
IT-528 is NOT the same as a QROPS transfer. iT-528 only applies to the initial "lump sum" element of a pension that's in payment.
It isn't transferring the entire pension from one country to the other...
​​​​​
Registered plans are those registered with CRA. The transfer is a bit like being in customs bond. An example would be between a RDSP and and RRSP.
https://www.canada.ca/en/revenue-age...ngs-plans.html
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Old Oct 22nd 2021, 5:50 pm
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Default Re: Technical question about tax and UK pension

The bulletin does not apply to only registered pensions....Copy and paste from paragraph 26 of IT-528 (my bold for emphasis)

¶ 26. Subparagraph 60(j)(i) allows a deduction for a transfer of a superannuation or pension benefit (that is not part of a series of periodic payments) from a non-registered pension plan in a year for services rendered by an individual, or the individual's spouse or former spouse, in a period throughout which that individual, or the individual's spouse or former spouse was not resident in Canada. However, if any part of the superannuation or pension benefit is deducted under subparagraph 110(1)(f)(i) because it is exempt from tax under a tax convention or agreement with another country, that part cannot be deducted under paragraph 60(j) as a transfer to the individual's RPP or RRSP. To be eligible for a deduction under paragraph 60(j) for the transfer of the superannuation or pension benefit to the individual's RPP or RRSP, the individual has to include such a benefit in income for the year under subparagraph 56(1)(a)(i) and the transfer has to be made for the year the amount is included in the individual's income or within 60 days after the end of the year.

On the basis that the UK pension lump sum will be paid into my Canadian Bank Account at whatever prevailing exchange rate I can get, and the same CAD value will be transferred to my RRSP the same day (if possible); this seems to be permitted and I was just wondering whether anyone had actually done this and could explain the mechanics of it to me (or point out any downsides I haven't thought about).

The reason I'm hoping this is possible is that my UK pension by itself is not enough to live on and I don't want to have to claim CPP/OAS prematurely, so am expecting to have to continue to work, and trying to plan for that scenario without sacrificing a huge chunk of the lump sum to tax....
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Old Oct 22nd 2021, 7:29 pm
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Default Re: Technical question about tax and UK pension

Originally Posted by GiantSantaCruzer View Post

The bulletin does not apply to only registered pensions....Copy and paste from paragraph 26 of IT-528 (my bold for emphasis)

¶ 26. Subparagraph 60(j)(i) allows a deduction for a transfer of a superannuation or pension benefit (that is not part of a series of periodic payments) from a non-registered pension plan in a year for services rendered by an individual, or the individual's spouse or former spouse, in a period throughout which that individual, or the individual's spouse or former spouse was not resident in Canada. However, if any part of the superannuation or pension benefit is deducted under subparagraph 110(1)(f)(i) because it is exempt from tax under a tax convention or agreement with another country, that part cannot be deducted under paragraph 60(j) as a transfer to the individual's RPP or RRSP. To be eligible for a deduction under paragraph 60(j) for the transfer of the superannuation or pension benefit to the individual's RPP or RRSP, the individual has to include such a benefit in income for the year under subparagraph 56(1)(a)(i) and the transfer has to be made for the year the amount is included in the individual's income or within 60 days after the end of the year.

On the basis that the UK pension lump sum will be paid into my Canadian Bank Account at whatever prevailing exchange rate I can get, and the same CAD value will be transferred to my RRSP the same day (if possible); this seems to be permitted and I was just wondering whether anyone had actually done this and could explain the mechanics of it to me (or point out any downsides I haven't thought about).

The reason I'm hoping this is possible is that my UK pension by itself is not enough to live on and I don't want to have to claim CPP/OAS prematurely, so am expecting to have to continue to work, and trying to plan for that scenario without sacrificing a huge chunk of the lump sum to tax....
You are absolutely correct. Which is very cool. You CAN do it. And by the looks of it, people who have DC pensions can transfer the whole amount into an RRSP using this trick. This reference specifically states that you don't have to move money directly into an RRSP as long as you meet the deadline.

https://www.mondaq.com/canada/retire...er39s-analysis
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Old Oct 22nd 2021, 7:37 pm
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Default Re: Technical question about tax and UK pension

You might find this useful too: https://taxinterpretations.com/cra/s...2012-0468271e5
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Old May 4th 2022, 9:42 pm
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Default Re: Technical question about tax and UK pension

I heard about this '60J' method of moving pensions to Canada from an (unpaid) tax lawyer and my research indicates it should work and gets round the need to use a QROPS. I have a ~GBP100k Standard Life pension that I need to move to Canada, as with SL I can only take it via lump sum, annuity or transfer due to SL's rules for overseas clients. Most QROPs have a minimum investment of 250k (happy to hear otherwise if anyone knows......) so that route isn't open to me.

I was going to get some paid advice on this and do a 'dummy' tax filing with the CRA to see if they would allow me to simply pay in the ~$200k lump sum from SL into my current RSP with Invest Direct. The only requirement seems to be that it's a one-off payment into the RSP and that some of the UK pension funds originated from an employer. (Both of which I can comply with although the original 'employer' funds took a very circuitous route from Binder Hamlyn, through Equitable Life (which is now dead!) to SL, so proving the employer part may prove difficult).

Does anyone have any further advice or experience of paying in UK pension lump sums into their RSP? GiantSantaCruzer - have you done this yet? Did it work? Have CRA given you their blessing?!!! Interested to hear .............
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Old May 5th 2022, 1:33 pm
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Default Re: Technical question about tax and UK pension

Originally Posted by AndrewE View Post
I heard about this '60J' method of moving pensions to Canada from an (unpaid) tax lawyer and my research indicates it should work and gets round the need to use a QROPS. I have a ~GBP100k Standard Life pension that I need to move to Canada, as with SL I can only take it via lump sum, annuity or transfer due to SL's rules for overseas clients. Most QROPs have a minimum investment of 250k (happy to hear otherwise if anyone knows......) so that route isn't open to me.

I was going to get some paid advice on this and do a 'dummy' tax filing with the CRA to see if they would allow me to simply pay in the ~$200k lump sum from SL into my current RSP with Invest Direct. The only requirement seems to be that it's a one-off payment into the RSP and that some of the UK pension funds originated from an employer. (Both of which I can comply with although the original 'employer' funds took a very circuitous route from Binder Hamlyn, through Equitable Life (which is now dead!) to SL, so proving the employer part may prove difficult).

Does anyone have any further advice or experience of paying in UK pension lump sums into their RSP? GiantSantaCruzer - have you done this yet? Did it work? Have CRA given you their blessing?!!! Interested to hear .............
While that may work from the Canadian side, it will not work from the UK side as they require all such transfers must go into a QROPS.

Lots on here have used the "60J" method to transfer funds over, but all have had to be deposited into a QROPS to avoid tax consequences from the HMRC perspective.
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Old May 5th 2022, 4:29 pm
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Default Re: Technical question about tax and UK pension

I don't believe it's a pension 'transfer'. I understand that for QROPs one needs to 'transfer' the pension over but for this the route (I believe) is to cash in the UK pension as a lump sum (UFPLS etc), move the money to Canada, convert it to CAD and then pay it in to an existing RSP in the same tax year that the lump sum is received from the UK provider. Then claim it on your tax return for that year under the 60J rules. It seems the funds can even be used during that tax year in an unregistered account!

From the link above:
"The fourth requirement under paragraph 60(j) is that the claiming taxpayer must report the amount of the foreign-pension benefit as income for the year in which the benefit was received.
The fifth requirement is that the taxpayer must contribute the amount of the foreign-pension benefit to his or her RRSP within 60 days after the end of the year in which the taxpayer received the foreign-pension benefit.
Finally, the sixth requirement is that the taxpayer must designate the RRSP contribution as a transfer under subparagraph 60(j)(i). The taxpayer does so by identifying the amount of the contribution as an RRSP transfer on Schedule 7 of the taxpayer's T1 income-tax return."


So a 'transfer' in the QROPS sense doesn't occur. All that HMRC know (and need to know) is that you've cashed in your pension as a lump sum. So you need to be sure you've got a NT tax code before doing it or there'll be a hefty tax payment and reclaim to go through.

The part I'm not sure of yet are the mechanics around the Canadian end and CRA sign-off on the additional RSP contribution. It looks very simple. Does anyone know of anyone who has done it / tried to do this? GiantSantaCruzer?
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Old May 5th 2022, 5:43 pm
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Default Re: Technical question about tax and UK pension

Originally Posted by AndrewE View Post
I don't believe it's a pension 'transfer'. I understand that for QROPs one needs to 'transfer' the pension over but for this the route (I believe) is to cash in the UK pension as a lump sum (UFPLS etc), move the money to Canada, convert it to CAD and then pay it in to an existing RSP in the same tax year that the lump sum is received from the UK provider. Then claim it on your tax return for that year under the 60J rules. It seems the funds can even be used during that tax year in an unregistered account!

From the link above:
"The fourth requirement under paragraph 60(j) is that the claiming taxpayer must report the amount of the foreign-pension benefit as income for the year in which the benefit was received.
The fifth requirement is that the taxpayer must contribute the amount of the foreign-pension benefit to his or her RRSP within 60 days after the end of the year in which the taxpayer received the foreign-pension benefit.
Finally, the sixth requirement is that the taxpayer must designate the RRSP contribution as a transfer under subparagraph 60(j)(i). The taxpayer does so by identifying the amount of the contribution as an RRSP transfer on Schedule 7 of the taxpayer's T1 income-tax return."


So a 'transfer' in the QROPS sense doesn't occur. All that HMRC know (and need to know) is that you've cashed in your pension as a lump sum. So you need to be sure you've got a NT tax code before doing it or there'll be a hefty tax payment and reclaim to go through.

The part I'm not sure of yet are the mechanics around the Canadian end and CRA sign-off on the additional RSP contribution. It looks very simple. Does anyone know of anyone who has done it / tried to do this? GiantSantaCruzer?
I would argue that, for 60(J) to apply, it must come from a pension plan. If it has already been converted to cash, it is now simply income and will need to be declared as such.
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Old May 5th 2022, 7:28 pm
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Default Re: Technical question about tax and UK pension

Agreed, and getting the CRA to acknowledge that the funds are from a suitable pension scheme, and therefore comply with 60J, is one of the key requirements. I think the rest of the 60J requirements are quite straightforward as they are to do with timing but it would be good to hear from anyone who has done this or knows about it. Are there any pitfalls.....?
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Old May 5th 2022, 7:37 pm
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Default Re: Technical question about tax and UK pension

Believe there is a way to pay a small fee and get CRA to make a formal judgement before making the withdrawal. Might be worth it.
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