ralphster

Folks,

Can anyone explain how it works with royalty payments (income from music, books etc) that are received in the UK once you are in Canada? Are royalties received after the date you land (PR) deemed to be UK or Cdn income?

If UK, presumably you continue to do a UK self assessment tax return and pay any UK tax due, which is then not double tax in Canada? Does it make more sense for the royalty agencies to pay future royalties into a Cdn bank account. Would it then be deemed Cdn income?

Thanks

Auld Yin

As a tax resident of Canada you are required to report all world-wide income. If you have paid tax in the UK on the same income you will be permitted to offset against Canadian tax due.

Simon Legree

That's exactly how I deal with my taxes. It's no different from reporting any pension income which you may receive from anywhere.

dbd33

I think it probably is different and would guess that the royalties are Canadian income if they're paid after the recipient becomes resident in Canada. I would think this best for the OP as it's less hassle to deal with one tax man than two.

JonboyE

Once you are tax-resident in Canada then all your income from any source is taxable in Canada. If the royalties arise in the UK then HMRC are also entitled to tax them but the maximum rate under the tax treaty is 10%. If they do tax you you can claim a credit for this against Canadian tax due on the same income.

Fill this in, get it certified by the CRA, and send it to HMRC.

http://www.hmrc.gov.uk/cnr/canada-individual.pdf

ralphster

Thanks folks.

JoboyE, so in theory you'll only be taxed at 10% on interest and royalties, as opposed to the standard UK tax rate (21%). Would you still be entitled to the tax allowance if you are a UK national but linving in Canada?

Presumably HMRC would tax this when you complete a UK Self Assessment tax return? Or is there other form to fill to declare gross royalties?

JonboyE

You are only taxed at a maximum of 10% in the UK. You pay the balance of the tax in Canada at whatever your marginal rate is here.

You do retain your personal allowances in the UK but that is largely irrelevant. If the royalty payer withholds 10% then you would normally not need to file a British tax return as you have met your liability there (although HMRC can still ask you to file a return if they wish).

Editha

My husband gets royalties received in the UK; that is paid by his UK publisher into our UK bank account.

I deal with our tax returns in Canada. I present the royalty earnings as income from a business. That is, my husband's business is writing and he does it in Canada. I can then set off his "business expenses" against the income. That includes a proportion of domestic expenses, mortgage, utilities etc. That wipes out any tax liability on the royalties. I've never had any problems with the Canadian tax authority over this.

As far as the UK inland revenue is concerned, they insisted my husband complete a UK tax return for the first three years he was here. However, I eventually persuaded them that his royalties were earned in Canada and none of their business, even if paid by a UK publisher into a UK account.

Finally, you may find that your publisher is international and can pay your royalties from their Canada office in CDN $. One of my husband's publishers did this automatically, as soon as they received his Canadian address.

Everything about royalties above also applies to copyright payments.

I hope that helps.

Aviator

You should be careful how much of household expenses you write off against taxes, especially the mortgage. The problems may arise if and when you sell your house and end up having to pay capital gains tax on all or part of the gain in value. General household expenses based on percentage of property used is easy to get through, any capital improvements and financing can cause issues later depending how they are handled.

JonboyE

This works as long as the taxpayer is actively involved in the business of earning royalties, as your husband seems to be. However, royalties can also be passive income in which case you could not write off any expenses.

Reading the OP's post I understood that the OP is receiving royalties for something he did some time ago in the UK.

Regarding the Aviator's point about potential exposure to a capital gain the CRA take the view that if the business use of the house is small in relation to its use as a residence then it will not attract capital gains tax.

Editha

I don't think that makes any difference. My husband's business is that of writer. The royalties are the profits from his business as writer. It doesn't matter that the writing on which he is receiving the profits was done some time ago in the UK. His business now has moved to Canada, and its profits are Canadian income.

I'm not sure what you mean by passive income. For them to be that, the taxpayer would have had to wind up his business. Why would he do that, even if he is not writing now? Tax officers don't turn up to inspect you and ensure you are sitting in front of a computer typing away. Royalties only become passive income when the writer has died.

Alan2005

http://www.youtube.com/watch?v=M8JjQ...eature=related

JonboyE

For example: suppose that ten years ago you invented a super widget and you sold the right to manufacture and sell it in exchange for a royalty on each widget sold.

Your royalty income is such that you don't need to invent anything more. In fact you play golf all day, every day.

In the current year you are not actively involved in earning royalty income. Consequently you do not have any expenses relating to the royalty income. It is therefore not considered income from self-employment.

This kind of royalty income is reported on line 104 - other employment income.

If the taxpayer incurs expenses in the current year in order to earn royalty income then it is correct to report it on lines 162/135.

Truly passive royalty income, e.g. if you purchased the interest in the royalty, is reported on line 121.

Editha

OK. But not likely in relation to a writer, who is still likely to have a corner of the house with a desk and a computer, and therefore has expenses. Frankly, I'd be surprised if the widget inventor could not call himself a widget consultant and also have a corner of the house with desk and computer for expense purposes. But then I don't know much about the widget industry.

JonboyE

I am sure that many widget inventors do.