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Pension questions answered
When my wife and I discussed the possibility of emigrating to Canada, writes Steve Kennard, my questions were the same ones everyone asks
Where shall we go? What will the job opportunities be? What about a house and schools? However, I was soon to retire from the Royal Marines and was very concerned to know what would happen with my pension.
Without doubt, it is important to consider the implications of any pensions you will receive from the UK after you land in Canada. It does not matter what age you are, because at some stage you will wish to be receiving a pension when you retire. Any pension that is paid to you from the UK, be it from the state, a former employer, or a pension plan, is reportable and taxable in Canada. Should the UK withhold any tax, it is, in most circumstances, claimable as a foreign tax credit on your Canadian tax return. As a Canadian resident you are required to file a tax return every year; it clarifies your entitlement to certain allowances both federal and provincial, including the Child Tax Credit (for children up to the age of 18).
Canadian pensions
The Canadian equivalent of the UK state pension is the Canadian Pension Plan (CPP) and you contribute to this throughout your working life in Canada. It is usual to start receiving CPP at the age of 65, however you are able to take it as early as 60 with a lower payment, or later if you wish. Some companies have Retirement Pension Plans (RPP) to which they and you may contribute. You are also able to contribute to your own Registered Retirement Pension Plan (RRSP). Throughout your working career in Canada you are able to provide for your retirement with either the RPP or RRSP; the amount you may save in these schemes is regulated by the Government of Canada. In 2005 you were able to contribute up to 18 per cent of your earned income up to a maximum of CDN$16,500 minus any funds contributed by your employer into an RPP during the year before.
As an incentive to save for your retirement, the Government allows you to reduce your total income for the year by the amount that you saved in an RRSP to then reach the figure for your taxable income on your annual tax return, thereby reducing your tax liability. During the lifetime of your RRSP or until you decide to cash it in, all interest accrued in the plan is tax free. If you have a private pension plan or tax free savings in the UK you are able to have them transferred directly into an RRSP here in Canada. I would advise that you first ask the company or bank holding your funds about the procedure and if there are any charges they will apply should you decide to transfer them to Canada. Likewise, you may wish to ascertain whether there is any UK tax advantage to contributing more to this scheme before your departure. It is important to understand that if you cash in any pension plans or tax free savings in the UK there will very probably be a tax implication (discuss this with your financial advisor before doing so). The same problem arises in Canada if you cash in anything after your arrival, your tax reportable income here is from all worldwide sources.
The UK tax year is from 6th April to 5th April whilst the Canadian tax year is 1st January to 31st December. As with any financial planning timing is everything; you will be subject to the Canadian tax laws and therefore required to report your worldwide income from the date of your arrival. After you arrive in Canada and have set up your bank accounts etcetera, I would suggest you discuss an RRSP account with either the bank or a financial advisor.
Tackling transfers
With respect to your private pension or tax free savings in the UK when you transfer said saving from a plan held outside Canada into either an RPP or RRSP you will be required to include the amount in your income for that year and take a subsequent deduction for the same amount on the tax return. This in effect allows you to transfer your funds from a tax free savings situation in the UK to a tax free savings plan in Canada. This can be done anytime after your arrival, and I would suggest that it is best to do so when you feel settled in your new home and situation.
For further information:
H&R Block Canada Inc has hundreds of offices throughout Canada and offers tax services and advice on personal, business, and other tax returns along with tax planning and bookkeeping services.
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