Canadian In London, Canadian Income Tax

I've been living and working in the UK since October 2006 and have questions about Canadian taxes. I've read through previous posts and understand that becoming a 'non-resident' would be very difficult, especially seeing as I maintain a Canadian bank account and credit card (despite rarely using them now).

So, I filed my 2007 Canadian tax return stating all my UK income. I did some research and concluded that the only thing I needed to do differently is to fill out a federal and provincial foreign tax credit form to claim the taxes I paid to the UK on my UK income. I did the calculation on the T2099 and it seemed to result in me not owing any taxes to Canada. I was therefore unpleasantly surprised when I received a notice of assessment from Revenue Canada recently stating that I owed them several thousand dollars. This was due to their downward revisions to my foreign tax credits. I called them up and their response was that Canada has higher tax rates and therefore I pretty much owe the difference.

Is there some part of this process I am missing? Is this generally the case that Canadians living in lower income tax regions have to pony up extra money to the Canadian government every year? Any help would be much appreciated.

Important note: I did not earn any interest income. just my salary to which I paid PAYE taxes.

Hard to say without knowing what tax bracket you're in, if you're in the 20% bracket in the UK you might be in a higher bracket in Canada (plus if you live in Ontario you might be in the 43% bracket if you are in the 40% bracket in the UK), depends on your income, plus you need to take into account the CPP and the NI. CPP is a fairly trivial part of your taxes in Canada, but NI is much more significant in the UK. Plus there's the totalization agreement to take into account, e.g. whether your employer in the UK is Canadian.

Hard to comment really, you can always argue with the CRA about it if you think they're wrong.

Also there's the exchange rate, etc.

If you earn between $72,000 and $123,000 or so though you should be slightly better off paying Canadian taxes because they're more progressive, depends on your Provincial rate and what tax credits you claim etc. though. At those pay levels you're paying top rate in the UK but mid-rate in Canada.

Thanks for the reply Steven. I was in the middle tax bracket in the UK for 2007 and my province of residence in Canada is Alberta (10% flat income tax). I also work for a wholly UK firm with no Canadian connections. I did some calculations, and it does seem as if I might have 'underpaid' by Canadian standards. In total, the national income tax deducted from my pay during the 2007 calendar year amounted to just 14.8% of gross income. As you said, it does seem as if the differential methods of taxation in the UK is a bit unfair. While I only paid 14.8% in taxes, I had a further 8.4% deducted from my gross income for National Insurance, not to mention the council tax I paid and of course the much higher sales tax we pay here in the UK. I cannot deduct either the NI, council tax or higher sales taxes of course, so it seems to Cdn authorities that I was paying very low taxes.

Does anybody else out there have stories about being surprised with a stiff tax bill from canada? Can anyone recommend a decent UK accountant in central London that could help with my Canadian tax return for future years?

Look at this way, under the social security agreement your CPP contribution will be massive so you'll be able to retire in no time.

And if you believe that I've got a bridge at Lake Havasu to sell you.

I have to say one of the things I like about the Canadian tax system is that it is much more transparent than either the UK or US tax systems, because most of the tax is derived from income tax rather than social security taxes. Which is probably why they did it that way, to make it a tax advantage to live in Canada without actually lowering the overall tax rates.

Because in fact you pay more tax overall in the UK than you would have in Canada, but by remaining a tax resident in Canada you pay even more tax, so it encourages you to move home, sort of, but I think this theory doesn't quite work if you move to the UK because moving your tax home there is relatively simple compared to the US.

I would suggest you simply move your tax home to the UK and sever all residential ties to Canada. It's not like with the US where there is an enormous amount of paperwork to keep track of and they get their knickers in a twist if you move home later on.

If you've got an RRSP you're worried about you might want to check how they're treated under the tax treaty though because you may have problems with interest/distributions/dividends etc. in the RRSP if you cease to be a Canadian tax resident.

If you still have other Canadian source income you can just file a non-resident T1 to cover it and claim a tax credit in the UK.

If you don't move your tax home to the UK (and assuming you still have Canadian income, otherwise it's a moot point), you still have to make CPP contributions in Canada and your UK employer also has to do NI deductions. You could at least get rid of the CPP contributions by moving your tax home to the UK.

This is probably worth having a read of but I think it basically says what I've just said as your employer is in the UK: http://www.dwp.gov.uk/lifeevent/benefit ... -oct05.pdf

hello everyone,

this is richard edward.

work here in london in insurance firm.

Hi Justin,
Have you had any luck locating a good accountant in London that can help you with your tax returns? Just that I am in the same boat as you, somewhat, I am working in the UK for the latter half of 2008 but have worked in Canada for the earlier half. For tak year 2008 I have no idea how Im going to file taxes. I'm in the highest tax bracket for both countries and may have ties into Canada (investments, etc.).

Looking for someone to help me out.thanks! err.cheers!

If you've got ties to Canada you have to carry on filing in Canada. So you'd have to claim a foreign tax credit based on how much income tax you paid in the UK.

Does anybody else out there have stories about being surprised with a stiff tax bill from canada? Can anyone recommend a decent UK accountant in central London that could help with my Canadian tax return for future years?

After my first year of living in the UK (2006), I reported my worldwide income on my Canadian income tax return, as well as the foreign tax paid. I'm not sure which bracket I was in, but my income was around $100,000. Unfortunately, the foreign tax credit was not enough to completely offset the Canadian income tax owed on the worldwide income, so I ended up paying the CRA the differnce (approximately $1000). It wasn't a massive amount, but still, that's a grand that I wouldn't have had to pay if I was considered a non-resident (i'm still a little fuzzy on how that's determined - is it a matter of fact? who decides? do i decide? does the CRA decide?). Anyways, The CRA requested documents to support my foreign tax credit claim, which I did, and everything was peachy. I filed this return on my own (because I like to think I'm a smart guy how knows what he's doing), but in retrospect I should have sought the advice of a professional. I advise everybody to do that, especially if you're a high income earner.

So after that year, I found myself a professional accountant who is familiar with my particular situation (he too is a Canadian expat). Send me a personal message and I'll send you his contact details if you like. He now handles my Canadian and UK returns and provides good tax advice. Last year he got me a refund of £1600 on my UK return!

Best of luck dude.

You tell them on your T1 that you are non-resident. There's a check box on the front. If you still have Canadian source income that must be reported after that, you file a non-resident T1. However you must cut all residential ties to Canada in order to be able to do this, Form NR-73 lists them.

Unlike some other countries, there aren't really many reasons to keep your tax home in Canada if you move to the UK, the only reasons I can think of off-hand is if you're there for less than a full calendar year or if you have assets in a third country which would make it complicated to do.

Or the most obvious one - you pay less tax keeping your tax home as Canada, but that's a very fine calculation compared to some other countries. If you work for a Canadian employer in the UK in most cases you will pay less tax, because you will pay the combination of CPP and UK income tax which is obviously going to be less than paying NI on it.

I can think of other situations too but it depends on your personal situation really. E.g. if your UK employer has a Canadian operation and can route your pay to you that way and you're in a lower tax bracket in Canada.

You tell them on your T1 that you are non-resident. There's a check box on the front.

yeah, that's what my accountant did for me in the following year. cheers for the info. good stuff to read.