QUESTION: We are intending to live and work in the UK for a couple of years.
We have a First Home Owners RRSP withdrawal we used as a down payment on our
property (which we will rent out), which we understand we would have to pay
the tax on if we became residents of the UK for tax purposes. Given this
would be a sizeable cost and the hassle involved, we are thinking of
remaining residents of Canada for tax purposes and claiming back the UK
double income tax through the tax treaty provisions. We understand this will
be a somewhat laborious process but may save us money. Are there any other
gotchas we should be aware of. We understand that ultimately the decision on
our status is a duke out between the CRA and the UK IR. Can we decide to
try to become non-residents in CA mid way through our stay in the UK
(trashing our Driving Licences, bank accounts etc.)?
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david ingram replies:
If you are only going for two years it is likely a good idea because it also
means that increases in the value of the house can be tax free.
In this case, we (or you or someone) have to jog the British Income because
of the April Year end. Since Canada taxes on a calendar year, we need to
pro-rate the incomes you earn for tax purposes. If going to do it, make
sure that your employer keeps a record of your year end for Dec 31st as well
as the year end for the UK.
If you intend to come back in two years, it used to be the CRA's policy to
try and tax you.
Because of the 26% rise in real estate values for the last year, it would
definitely have been to your benefit to do this for the last three years as
a rule.
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