Living a Transatlantic lifestyle and the tax implications

[northeast canuck]

Hello everyone,

I am a Canadian and have been living in Britain since 1997 and I hold dual citizenship. My wife is British but has permanent residency status for Canada. It's a long and complicated story how I ended up here but to make it short I moved here to be with my wife with no idea how long I would be here as we always thought we would return to live in Canada at some point. But life happens, children arrived, my career took off here and so here we are 12 years later still in the UK.

I am very, very concerned, however, about the future of the UK and in particular my children's future here. My wife and I are of the opinion that they would have a better future in Canada and so have started making preparations to live there.

This is where things get really complicated. I am currently employed as an airline pilot with a UK airline and intend to continue working for them, probably indefinitely. The consequences for me joining a Canadian airline as a co-pilot would mean a pay cut in the order of around 80% so not really an option that's available to me! I am fortunate that I work for an enlightened employer with generous amounts of time off and several part-time working options available to me down the road should I want that.

So the "plan" is for my wife and children to move back to Vancouver, for my wife to start her career and the kids are both school age so they would just start at one of the local high schools. I would spend around 12 days a month in Canada, on average, initially and then if my wife gets a job sorted out then I would go part-time and spend around 6 or 7 months a year in Canada.

All very complicated especially considering the commute but I'm used to jet lag and distance flying so not so much of an issue for me. What I am concerned about though is the tax implications of all of this. When I left Canada the tax rules were a lot different to now, and all I had to do was tell them I was leaving and that was that. Plus I never had any meaningful income or job before then anyway. The only thing I have kept up from that time was a bank account which I needed for the purpose of paying off student loans. It currently has around $5 in it!

So I am completely off the radar of revenue Canada, or whatever they are called now. As I would not be returning to Canada as a resident do I need to do anything WRT to the tax situation? I am hoping to keep things as they are as I get paid in Sterling from a UK employer into a UK bank account. Things get complicated because I am paid a salary, flight allowances (which are largely tax-free and sanctioned by HMRC), I have pension contributions, participate in a share-save scheme and receive bonus shares from my employer every year as well.

Just about the only thing I do not have anymore is a house, as I sold mine but the proceeds of that sale are invested in a UK bank account.

I will not be getting a healthcard, driving licence, or any of those things as I will just keep everything going here instead. Obviously my wife will be resident in Canada for tax purposes.

I have a feeling that the solution for me is not going to be straightforward and will probably need some professional advice. I was just wondering if anyone else here has been in a remotely similar situation, and if anyone can recommend a decent tax advisor who might be able to help me?

Thanks in advance for any help!

[Steven]

Mmm, this is a tricky one. Your wife lives in Canada and she can do because she's an LPR. A spouse is a residential tie for tax purposes so what that would mean under normal circumstances is that because your principal residence and your spouse is in Canada and you're a Canadian citizen, you have to file a T1 jointly every year and claim a foreign tax credit for the money you earn as a non-resident employee of a UK company.

Normally this wouldn't be a major problem because basically you would be paying a bit more tax as NI can't be claimed as a foreign tax credit, but on the other hand, you still get your full UK pension (without cost of living adjustments) when you retire in addition to CPP in Canada.

You lose certain UK tax advantages, like ISAs, but up to this point you're not in a major stew.

Where it gets messy is that you're an airline pilot and you work in international airspace, which is what the HMRC bases the flight allowances on. I don't think there's any Canadian equivalent to them so basically although you pay a smaller amount of income tax in the UK you're still subject to the full Canadian rate, so you would pay a ton more tax than you currently do.

I had a friend who lived in Adelaide who was in exactly the same situation, he worked for BA as a long-haul pilot (and imo probably had the longest commute in the world to work).

IIRC, what he did was to spend at least 184 days outside of Australia, and his wife filed as a single person in Australia. That way he could keep his tax home in the UK and avoid paying Australian income taxes on top of it. However I'm not sure it's legal to do this.

What you really need to do is track down a Canadian accountant who is familiar with dealing with pilots, a UK accountant I doubt would be able to help because this is a bit obscure from their perspective. Or you could give the CRA a call and ask them what deductions there are for people who work in international airspace. If there is an equivalent then you should be okay.

[northeast canuck]

Thanks Steve. I might try calling the CRA and see what they say. But in the end I think I am going to need an accountant who can deal with specialty things like this! I'll start looking around.

The NI thing is a pain, especially because the government has recently used it as a way of stealthily increasing taxes without putting the main rates up and instead just removing the ceiling on NI contributions. From my perspective, it's just another tax I have to pay. I don't see why it shouldn't count, but there we are and I do see your point re the pension situation. As for the flight allowances, they are not a huge amount in the overall scheme of things but if you take that and add the NI thing and probably one or two other things I haven't thought of, it could be a problem. HMRC has recently conducted a review of our flight allowances and we await the results of that over the next few weeks. In this era of declining tax revenues I wouldn't be at all surprised if they decided to remove the exemption anyway, so maybe it won't really matter in the end. It's not a huge deal for pilots but will hit cabin crew really badly!

I suspect I could probably just get away with not telling anyone, a bit like your friend in Adelaide, but this will almost certainly come back to haunt me when I go part-time and spend more than 184 days a year in Canada, which is what I would certainly do in the longer term. At the end of the day, I am not looking to avoid paying my fair share of tax, but I am getting concerned about how complex this is all going to be and I just know I am going to end up paying too much!

BTW I am a little confused about what the rate of tax would be. In the UK there is just a national rate of tax but of course in Canada it is split between federal and provincial. I have always assumed that the rate would be the combined amount of the federal and the provincial rate of whatever province you choose to live in. Is this correct?

Thanks for your help.

[lesterb]

Google "centa accountants" in vancouver and "compass tax" in calgary as this site won't let me post links.

Been here 13yrs and heading back as we don't want our kids growing up here. Otherwise it's been a wonderful experience.

We own a bunch of houses in Calgary, have used compass tax and get the centa email letter.

Cross border accountants cost a bomb, get ready to be spanked

[northeast canuck]

Thanks for the info, I've looked at their websites and will get in touch with them and see if there is anything they can do for me.

[elevensie]

Duty pay for uk pilots is tax exempt on internal operations as well.