foreign income tax credit...

currently i am considered a canadian resident for canadian tax purposes (i do not want to obtain non resident status). i live and work in the uk, and paye taxes are deducted from my paycheques.

when i go to file my canadian income tax return this year, i will declare my worldwide income, and all of my paye deductions will be used as a foreign tax credit. so, i won't be double taxed.

correct?

it seems to me that the tax systems in canada and the uk are quite similar. they are both tiered systems where the marginal tax rate increases by bracket, and in general, the effective tax rates work out to be about roughly the same at various income levels.

or am i wrong?

So, for example, after all the calculations are done, a person who earns £50K in the uk will be taxed at an effective rate of 30%, and a person who earns the equivalent in canada (approx. $105K) will also be taxed at an effective tax rate of approx. 30%.

note that these are the tools i used:
Ernst and Young's Canadian Income Tax Calculator
listentotaxman's UK PAYE Tax Calculator
XE's Universal Currency Converter

now, has anybody been in a similar situation, i.e. canadian resident (for tax purposes), earning all regular salary income in the uk (and subject to paye deductions)?

if so, did you find that you owed the cra a lot of money after the foreign tax credit was applied?

from my calculations on my own salary, i think i'll owe the cra approx. $700 after the foreign tax credit is applied.

basically, i'm deciding whether or not to go through the process of applying for non residency status for tax purposes in canada. if the difference is less than $1000, i won't bother. but if it's more, i'll probably do it.

any comments are welcome.

cheers.

Don't have any specific answers to your questions, the only thing I can give input on is regarding getting non-resident status in Canada -- and that input is that it's harder than you think!

If you're only abroad for a short time, and have ANY ties to Canada at all (investments, property, belongings in storage, health insurance, credit cards, loans, bank accounts, dependents.you name it) then you will almost certainly NOT qualify for non-residency.

There is not a standard application that you can fill out and have it approved based on certain criteria - it is all up to the person looking at your form and what they choose to say. Really appalling when you think about it, but that's the way they do it.

So, that may help make your decision!

yeah, you're right, it's a big hassle to gain status as a non-resident for income tax purposes in canada.

personally, i don't want to do it. although i've already liquidated my assets, i still have canadian rrsp investments, a canadian bank account, and some credit cards. i'm also a director for a canadian corporation. i would prefer to keep these things. i plan to return to canada in 5 years or so.

however, if obtaining non-resident status results in significant tax savings, then maybe it's something i should pursue.

so to reiterate my question, is it worth the hassle to declare non-residency status in canada while earning income in the uk? are the tax savings very significant? from my research, this does not seem to be the case.

if i were working in the united states, where the effective tax rates were lower, i would obviously do it, but since i'm working in the uk, where the effective tax rates seem to be roughly on par with those in canada, i'm not so sure.

i'd really like to hear about the experiences of other canadian expatriates working in the uk, regarding the foreign tax credit on their canadian income tax returns. was it enough to completely offset the canadian income tax bill?

this is a very dry topic, i know.

According to my accountant in Canada, the UK and Canada have an agreement because they are both commonwell countries that states you do not have to pay taxes in both countries.

If you don't have any canadian income, you shouldn't have to pay canaidan taxes.

Has anyone been told anything differently?
Leanne

Have a look at this article on my website - will give you plenty of userful information. Please google "lifeisgand tax" and you'll see the article. It was just published in Canadian Money Saver.

If you don't have any canadian income, you shouldn't have to pay canaidan taxes.

Has anyone been told anything differently?
Leanne

This is what I have been told by my accountant as well. I wouldn't worry about any potential tax benefits unless you are earning income in both countries, at which point it may be worth your while to file non-residency.

The only problem I forsee is that when you move back it may take up to 6 months to regain your status.

Hello Sleepy:

Did you get a straight answer regarding global taxation? I am in the same boat and not sure how to file. My accountant says they can submit the forms in such a way that you don't have to cut all ties to Canada (banking, etc) to be non-resident. However, I am not sure if it's worth all the work/hassel if paying "global taxes" amounts to the same amount tax I'd end up paying as a non-resident paying only UK taxes. I can't get any good advice...

I agree with you - If it's only a small difference, it's not worth the hassel and cost starting from scratch when I move home - especially if I can't guarantee what my income will be once I return and setting up new credit etc.

It is quite complicated to be on that situation. That stuff needs special attention and solution. If your actions about solving it aren’t enough then it is the right time to find professional help to be on the right track.
This is to avoid confusion and wasting time. For we all know, that this is a sensitive issue that shouldn’t be neglected.

You can consult to UK Accountants to reslove all your accounts related problems. Here you will get accounting services, tax services, company liquidation and other accounts related services.

I can't find the actual section which addresses foreign income... but here is the link to the tax act laws-lois.justice.gc.ca/eng/acts/I-3.3/index.html

you might be able to find the relevant sections that address your concerns otherwise you may have to speak to a tax professional who will be able to provide some answers.