Taxes during immigration-Canada

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Entering Canada

When you cross the Canadian border at any port of entry, you have to declare cash or cash-equivalent instruments that you are carrying that are worth $10,000 or more. You do not have to declare any assets or cash left offshore at the port of entry (you do this later in your CRA tax returns depending on what the asset is).

When a bank transfers money on your behalf (e.g., by electronic transfer of funds), the bank declares the transfer on your behalf, you do not have to.

You do not have to pay tax on transfers of money into Canada (whether you bring the money in yourself or get a bank to transfer it for you). You only have to declare it (which the company dealing with your transfer will do for you). This rule has something to do with keeping tabs on money transfers so as to catch money launderers.

When am I considered resident in Canada for tax?

Usually from the date you 'land with the intent of establishing permanent residence' (aka 'landing as settler'). However, you are not likely to be considered resident in Canada for taxation purposes if you have conducted a 'soft landing' (i.e. a landing purely to activate your PR) and return within weeks to your original country to sell up and arrange for your permanent move at a later date.

You would be well advised if doing a 'soft landing' to minimise your financial arrangements in Canada until you move for good. It is OK to obtain a SIN and open a bank account, but you should keep a nominal amount of money in any Canadian accounts (e.g. enough to keep the account open). It would not be wise to move large sums of money over until you actually land as settler, as CRA may consider you tax resident.

For the official word on this from CRA (including when you have to file CRA tax returns even if non-resident), see here.

Canadian vs British tax years

The UK tax year runs from 6th April to the 5th April the following year.

The Canadian tax years runs from 1st January to 31st December of the same year.

In Canada, everyone must file a tax return, whether you are taxed at source or not (i.e. unlike the UK). The deadline for filing your tax returns to CRA is the 30th April after the end of the tax year (e.g. if your Canadian tax year ended on 31st December 2019, you would have until 30th April 2020 to file your return for 2019 - much shorter timescale than the UK). You will be fined for any late submissions.

Canada has two sets of annual taxes, one for Canada (i.e. federal tax) and one for the province you reside in (e.g. Ontario or British Columbia etc.). There will be different tax bands for each of these entities. The good news is that you don't have to worry too much about this as it is all calculated and dealt with in the single CRA tax return. EY have an unofficial but very useful tax estimator here that shows the differences between federal and provincial income taxes.

This may seem obvious, but there are many differences between CRA practices and procedures as compared the HMRC. You would be well advised to forget most of what you may know about how HMRC handles taxes and definitely do NOT assume that CRA will be 'much the same', they are not.

UK vs Canada tax cutover considerations

As the UK and Canada have different tax years, WHEN you actually leave the UK and who you pay taxes to in that first year depend on a number of factors. If you have resided in the UK for 183 or more days in the UK tax year, you will be considered resident for that entire tax year as regards taxes. Any less than 183 days and you MAY (or may not) qualify for 'part year or split year tax treatment' (i.e. your UK and Canadian taxes may be pro-rata'd for time in each country.

This one can get pretty complicated and a thorough read here is recommended!

Advising HMRC in the UK

Advise HMRC you are leaving / have left the UK

If you were taxed in the UK, you must advise HMRC that you are no longer resident in the UK for tax purposes. You do this by either using their on-line service here, OR by completing the HMRC Form P85 and sending this by mail, see here

Change ongoing pension or other income to pay gross

If you have ongoing income generated from the UK (e.g. private pensions etc.) where UK tax is deducted at source, you should be able to have this set up as non-taxable and have the income paid gross by your UK institution. To do this, you must complete a different HMRC form, have this stamped and signed by CRA Canada, then send it on to HMRC. If they are happy, HMRC will then advise your provider direct that you are an 'NT' (Non-Taxpayer) code and so your income will be paid gross from that point on (although you will of course have to declare this income now to CRA and will be taxed in Canada on it). The form required for this is here.

Some people making pension withdrawals from a SIPP product have reported that HMRC have refused to issue an NT tax code, and so UK tax continues to be deducted. This may be because these transactions are considered withdrawals from a pension accumulation plan (as opposed to withdrawals from an Income Drawdown product, which is a pension decumulation plan).

Others report that income taken from a UK Income Drawdown product have been issued an NT tax code and withdrawals are free of UK tax. The withdrawals of course have to be declared and are taxable to the CRA.

UK / Canada Double Taxation Agreement

There is a tax treaty between Canada and the United Kingdom which in effect agrees that you will not be charged full taxes by both countries on your income. Details here.

Declaring foreign assets to CRA

You must declare any assets overseas that have a cumulative value of $CAD100,000 or more (which would include property to rent out, investments, savings etc.). You must declare these on your first full year CRA tax return using CRA form 1135 (see here). Failure to do so will incur substantial penalties.

Note that the value of investments held in UK Personal Pension and / or Income Drawdown plans do NOT need to be disclosed in a T1135 as they are considered pensions.

Selling foreign assets

Once you land in Canada and are a tax resident of Canada, you do not have to pay tax on foreign capital assets that you own.

However, if you earn interest, dividends, rental income, etc., from your foreign capital assets, you do have to pay Canadian income tax on that income.

If you already have been taxed on that income in another country, you can declare that on your Canadian income tax return. In most cases, tax treaties will protect you from being taxed twice.

If you sell a foreign capital asset once you're living in Canada, you will be liable for capital gains tax on the profit that you generated between the date you became a tax resident of Canada (usually the date on which you landed in Canada) and the date that you sold the asset.

In order for you to know what that profit (or loss) is, you need to have a documented fair market evaluation of that asset at the time that you became a tax resident of Canada.

This is explained in more detail in the following Wiki articles:

Capital Gains Tax-Canada

Foreign Asset Reporting-Canada

Tax and House Sales - This article provides detailed information about moving to Canada and moving away from Canada. It is essential reading if you're going to be selling a house in either scenario.

Income tax

Please note that all people who are deemed to be residents of Canada for tax purposes and who are liable for taxes must complete an income tax return.

This is true even if you're employed, and your employer deducts income tax at source through a Pay As You Earn (PAYE) system.

In the year that you become a tax resident of Canada, the Canadian government taxes you only on the income that you've earned after after becoming a tax resident of Canada.

For more information, please see the Wiki article on Taxation.

Tax on rental income from a UK property

It is not uncommon for people to move to Canada but retain and rent out property in the UK. The situation regarding who pays what tax and how it is reported is described on another wiki page here.

Child tax benefit

Please see the Wiki article on Taxation.

UK state pension

If you are eligible for it, once you are within 4 months of your UK state pension age, you can claim your UK state 'old age' pension either by using the paper forms or online here. If you do not claim it, it will automatically 'defer' until such time as you do claim it. You can only backdate the pension income by 12 months. Your UK state pension is always paid gross of UK tax, however, you must declare it as non-taxed overseas income to CRA and will be taxed on it in Canada. You can arrange for it to be paid direct to your Canadian bank account, or direct to any UK bank account you may have retained and move it over via FOREX at a time of your choosing, however, you will be taxed in Canada when it is paid to you, regardless of whether it is held in a UK or Canadian bank account. You will not be eligible to any annual increases in the pension as you are resident in Canada (a long running matter complaint from the ex-pat community).

Useful Links

  • Official guide to the Canadian tax system for newcomers here.
  • Official HMRC process for advising them you are leaving the UK with link to form P85 here.
  • HMRC guide to the double taxation treaty with Canada here.
  • Ernst Young (EY) Canadian income tax estimating tax calculator here.
  • HMRC guide to full vs partial tax year treatment when you leave the UK here.
  • Official CRA guide to when you are considered tax resident in Canada and when you need to file returns even if non resident here
  • HMRC Double Taxation form to get a UK NT tax code assigned here