Pension Tax Stuff
 

I have been led to believe that the reciprocal tax agreement between UK and Canada, as well as it being a disabled pension, meant that all was well with my police pension from Scotland. I have been checking into this and I am concerned that I have got this very wrong.
I was retired due to an injury on duty and immediately started receiving a 20yr police pension with additional injury payment. It is and has always been taxed at source. The injury component is either not taxed or is not taxed very much. I have lived in Alberta for 5 years now and as the money is paid into a long term savings account in Scotland and will be left there till I retire at 60. I have a very bad feeling that I should have been declaring this and paying tax on it.
All advice gratefully received.

Re: Pension Tax Stuff
 

Your bad feeling is correct. Canadian residents must declare all worldwide income.

Re: Pension Tax Stuff
 

Technically. ;)

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Was wondering about the risk/rewards of that :wink_smile:

Maybe I should keep a low profile till I'm 55 and declare then:unsure:

Re: Pension Tax Stuff
 

Your bad feeling is justified unfortunately.

The retirement pension is taxable in Canada. It should not be taxed in the UK. However, you can generally get a credit for UK taxes paid against Canadian taxes owing. If Canadian taxes are higher than the amount withheld in the UK (and they usually are) then you are on the hook for the difference.

Disability pensions are not taxable if:

1) They are paid out of an insurance policy and you paid the premiums from after-tax money.

2) They are paid as a result of injuries sustained in active combat serving in the Canadian forces, or its allies in WWI or WWII.

3) They are paid as a result of injuries sustained whilst serving with the RCMP.

Unfortunately there is no reciprocal agreement with police disability pensions. You might want to read http://www.cra-arc.gc.ca/gncy/nvstgtns/vdp-eng.html.

Re: Pension Tax Stuff
 

Thanks for this, even if it is horrible news!

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And the penalties for not reporting are severe. Report it before CRA find out, once an investigation starts (if it does) then you cannot come clean and penalties and interest apply. You also need to report any foreign assets valued at over $100k if your bank account is over this amount. The penlites for not reporting are quite high. You may want to get an accountant to file an adjustment for you PDQ.

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Yes, it's time to sort this mess out, bugger!

Re: Pension Tax Stuff
 

Here's what you do. Download the form Canada Individual and guidance notes from HMRC website. Strangely it doesn't have a number but you can get it here;
www.hmrc.gov.uk/cnr/canada-individual.pdf

You send it back to HMRC and they refund the UK tax you paid for five years.
You have to also send proof of residence in Canada which you obtain from Revenue Canada.

Also if income from the UK is not taxable then it is not taxable in Canada either which should apply to the injury part of your pension.

Re: Pension Tax Stuff
 

Not necessarily. I receive two Army pensions (War Pension and another, I can't remember which, both of which arose from a medical discharge), both of which are paid tax free in England, both of which I must pay tax upon in Canada.

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Do you have any reference for this?

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IT-365R2

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<opens beer, relaxes>

Re: Pension Tax Stuff
 

Canadian Forces = no tax on injury pension
UK Forces = no tax etc
RCMP = no tax etc
UK Police = tax on all including non taxible (in UK) injury pension = disaster if verified!

Thanks all for input, but I better seek legal help.

Re: Pension Tax Stuff
 

From the website you linked to. My bolding.

amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service;

It is a special exemption for people injured in active combat. The OP was a copper.

IT-365R2 refers to an award of special or general damages. I.e. amounts awarded by a court.

I don't see anything that suggests a disability pension paid by a foreign police force is exempt form income tax.

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The first link I posted was in reply to Almost Canadian as he was referring to his war pension.

IT365R2 refers to amounts received as the result of a claim for damages. It does not say that the award has to be made by a court. Many police officers who become injured on duty do in fact sue their employers and Stuarty may be one of them but it is not necessary to have done this.

Re: Pension Tax Stuff
 

I suspect that AC is perfectly capable of reading the relevant legislation and drawing the appropriate conclusions.

If you sue an employer and are awarded a settlement I agree that this may not necessarily have to be included in income. However, there is nothing in the OP's posts to suggest this is the case. The tax status of the OP's disability pension in the UK is irrelevant in Canada except in the circumstances we have already discussed.

You state "Also if income from the UK is not taxable then it is not taxable in Canada either." Unfortunately, except in some very limited circumstances, this is simply not true.

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What the British Army calls a war pension and what the legislation in Canada deems to be a war pension are very different things. It would appear that, to qualify as a war pension in Canada, one must have obtained it as a result of active service in WWI or WWII. While I am getting on a bit, I don't believe that either of my parents were born at the time of WWII.

Stuarty would not have received a pension as a result of suing his employer. Damages and pensions are very different beasts.

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For the sake of completeness this is from the Income Tax Act:

56.
(1) Amounts to be included in income for year -- Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) pension benefits, unemployment insurance benefits, etc. -- any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(i) a superannuation or pension benefit including, without limiting the generality of the foregoing,

(A) the amount of any pension, supplement or spouse's or common-law partner's allowance under the Old Age Security Act and the amount of any similar payment under a law of a province,

(B) the amount of any benefit under the Canada Pension Plan or a provincial pension plan as defined in section 3 of that Act,

(C) the amount of any payment out of or under a specified pension plan, and

(C.1) the amount of any payment out of or under a foreign retirement arrangement established under the laws of a country, except to the extent that the amount would not, if the taxpayer were resident in the country, be subject to income taxation in the country,

On first reading this I noticed paragraph C.1 and thought Ah Ha! However, I looked in section 248 (1) for a definition of a foreign retirement arrangement and found that a foreign retirement arrangement is a prescribed plan or arrangement. Regulation 6803 limits a prescribed arrangement to one made under the laws of the United States of America.

Therefore any pension or retirement arrangement that arises under UK law is taxable in Canada unless it is exempted elsewhere in the act.

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What a bummer! You served your country and are no less deserving than those other older veterans.

[QUOTE=Stuarty would not have received a pension as a result of suing his employer.[/QUOTE]

I agree. Jonboy said that that was an example of how damages would be arrived at but most cases are settled out of court. It would be irrelevant anyway if the employer provided the disability/injury "pension" due to the fact that the incident led to the injury/disability occurring on duty.

[QUOTE=Damages and pensions are very different beasts.[/QUOTE]

Exactly! I placed the word pension in inverted commas. Although the monthly disability/injury payment is called a pension it can be withdrawn (for example if the recipient's condition has improved) Some police forces were planning to withdraw these kinds of payments when the recipient reached age 65, but I don't know whether they actually did.

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Some forces are still planning it to save money. Delightful policy that is designed to effect most, those who are in not in a position to defend themselves. Hopefully sanity will prevail and re-assessment required first. In 2003/4 new safeguards were put in place to ensure accurate assessments in the first place...stopping now as I feel a rant coming on and none of it will help my tax crisis.

'Canada Individual' Form
 

I'm in the process of filling in this form and I'm trying to decipher whether it's a 'Yes' or 'No' for the following question:

Part B Q.6 'Is Canadian tax on the income that is included in this form calculated by reference to the amount remitted to or received in Canada?'

The 'income that is included in this form' is my military pension, which is currently being taxed at source in the UK, hence why I'm filling in this form to claim the UK tax back and have it paid gross. I have recently declared this income on my first tax return and therefore it is liable for Canadian tax. As I understand it it makes no odds whether my pension is 'remitted or received in Canada' because I have to declare it as worldwide income regardless and therefore pay Canadian tax on it. To that end, I am guessing that I should put 'Yes' against this question?

Can anyone shed any light, ta?

Re: 'Canada Individual' Form
 

I think it is asking if you report this income on your Canadian tax return gross or net of UK tax. Hopefully the answer is no - i.e. you report the gross pension on your Canadian tax return.

If you claim a refund from HMRC you cannot get a foreign tax credit for the tax deducted in the UK.