Hello Expats

I am trying to get some guidance or a definitive answer on this question.

Here Goes:
I am under contract currently; when this contract expires I will get a financial bonus for completing it, however, it will not be paid to me until one month after the contract expires. I will also be entitled to one months paid holiday, which is the last working month up to the end of my contract.

I had intended to take up residency in Canada, under my SW visa, during the last month of the contract, ie when I was on holiday and look for a job. I assume that this would mean that my last month’s wages would be classed as overseas income and subject to Canadian Tax.

The question is would the financial bonus I will be paid after my contract expires also be subject to Canadian Tax as I would be in Canada two months when it goes into my English Bank.

I know this is an unusual situation but it cannot be unique so any advice or guidence would be very much appreciated.

Winston

Yes, as soon as you become a resident of Canada for tax purposes, you're taxed on your worldwide income.

I don't know if you're intending to stay in Canada once you've landed for your job hunting expedition.

If you in any case were intending to return to the UK (to sell your UK house, supervise packing of your household goods, etc.), then you could come to Canada for your job hunting trip without officially "landing." That is, you could choose not to activate your PR status when you enter Canada for the purposes of job hunting. In that case, you would not activate your status as a resident of Canada for tax purposes.

However, you should ensure that you do "land" and activate your PR status during the window in which you can do so. I've seen people around here saying that you can "land" (officially) within a year of your medicals.

Hi Judy

Very interesting, I was under the impression I could activate my PR SW visa on a holiday and then return home to UK. I can then visit Canada later in the year on a job hunting trip and I would not be resident in Canada until I sell my house in UK as it is my primary residence. After all I have five years to live in Canada for two to maintain my status. Until I enter Canada permanently and take up residency ie have a house brought/rented in Canada I am not liable for Canadian tax. Is this not the case?

If it is not the case then everybody with a SW visa would have to move to Canada permanently within one year of their medicals.

Your thoughts would be appreciated.

Winston

Tax residency is a question of fact rather than rules. You become resident for tax purposes when you establish sufficient residential ties to the country. There are a multitude of factors including where you live, where your family live, your bank accounts and credit cards, your driving license, your health coverage a car you own and so on.

Judy is quite correct to say that in the vast, vast majority of cases you are tax resident in Canada from the moment you "land" and activate your PR status. In one interpretation bulletin the Canada Revenue Agency (CRA) state that if you land as PR and apply for provincial health care they will assume you are tax resident, regardless of any other circumstances. This does leave the question of what happens if you land as a PR, but do not establish any other residential ties.

For example, you live in the UK. You own a house and car there. You have bank accounts and NHS coverage in the UK. For all that matters you are resident in the UK. You visit Canada on vacation and "land" and become a PR. You attend a few job interviews and maybe open a bank account and then return to the UK. You are back in the UK for a couple of months while you sell your house and car. You close down the majority of your credit cards and bank accounts (but keep one of each), cancel your insurances, send the form (P85 I think) to HMCR saying you are off for good, then hop on a plane back to Canada.

In these circumstances, if I were your tax adviser, I would be comfortable in claiming you became tax resident in Canada after your second flight here. Simply because, in reality, this is when you did become resident. I would offer no guarantees that the CRA would not challenge it, but you can make this claim in good conscience.

Having said that, does it matter that much? You have to pay tax on the earnings somewhere, and if it is taxable income in Canada you will be given credit for any UK tax paid on it.

As I said above, tax residency is a question of fact, not rules. The fact that you continue to own a house in the UK will be considered. If you habitually live there it is persuasive (but not conclusive) evidence that you are tax resident in the UK, not Canada. Other factors will also be considered.

See here.

Hi JonboyE

My intention to land is only to activate my PR SW Visa. I will not apply for any health ins or buy anything substantial just holiday. Later in the year I will return again for a longer holiday and arrange a rental property which I will take up on my third visit. On returning to the UK I will close up everything and notify the tax man

On visit two I will attempt to arrange Canadian employment again to coincide with my third visit. I will not return to UK after landing the third time. So from that date I am assuming that I will be resident in Canada for tax purposes.

I am not trying to avoid paying tax but I will be paid in the UK until the date, I land the third time so do not want to fall foul of any rules. On completion of my contract I will get a tax free financial bonus which I will need to purchase a house in Canada so do not want to lose any of it unnecessarily in tax.

The link is very informative but it seem to substantiate my thinking.

Any other comments would be gratefully appreciated.

Regards

Winston

Winston Green, I was going to respond to your response and say, "Oh yes, there is that other scenario."

But then JonboyE came along and clarified it, and his clarificatiion was clearer than mine would have been.

Thanks, JBE.

Unless of course he remains for more than 183 days in one year following which he will be statutory residence pursuant to s.250(1) of Income Tax Act 1985. No prizes for guessing that I have my tax exam tomorrow

That sounds reasonable to me.

AFAIK, there is no such thing as a tax free bonus in the UK. Up to $30K in redundancy yes, but bonus no. It may be paid free of tax but it might still be taxable. It would certainly be taxable in Canada.

For sure, that would be something the OP would want to avoid.

Good luck in the exam.

Thanks - this should be the last one

Very similar scenario....will try and keep it short.

e.g.

I arrive in Canada say Sep 08 and start working on a TWP as a Long Haul Dirver via PNP route.

In Oct 08 I recieve a UK TAX FREE lump sum payment.

Will this therefore mean this tax free lump sum payment into my UK bank account will be taxed by the Canadian tax man because I will be working in Canada at the time it is paid to me?

If yes is there a way of reclaiming the tax back.

Thanks

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You will be tax resident in Canada from September 2008.

What is the tax free lump sum for?

Mine will be part of my Military end of service payments.

Ex Mil recieve a Tax Free Lump Sum & a monthly taxed pension.

The tax free lump sum varies depending on what rank you are at the end of your service but it is = to 3 times your annual pension however there is the option of increasing the lump sum payment for a lower monthly pension depending on the persons circumstances but most will commute the max amount as it is tax free and your monthly pension jumps back to the full amount at the age of 55.

Thanks for your help.

Once you are tax resident in Canada your pension will be taxable in Canada, not the UK. However, you have to let the pension payers know.

As for the tax-free lump sum, I don't know to be honest. I can't find any information that says it is tax free in Canada as well. My instinct is that it will be taxable here if you are tax resident when you receive it. I'll keep looking.