The hardest thing

“The hardest thing to understand in the world is the income tax.” 
Albert Einstein

I have been meaning for some little while now to draft a brief disquisition on the subject of taxes – with particular reference to the effects thereon of relocating to a different continent. Though circumstances are – in term of taxation – really quite different from case to case, it is yet possible that my recent experiences in the field may be of some small use to someone somewhere.

That I have not until now carried out the electronic equivalent of putting pen to paper can be readily explained. Our situation featured certain complexities which have complicated the transition considerably. It is only very recently that we can state with reasonable confidence that our tax affairs have now been put in order. We have yet to receive final written confirmation that this is the case, but the omens have a propitious look about them.

It is a basic principle of income taxation that the norm is for all such to paid in one’s country of residence. There might well be exceptions should one be in receipt of income from territories other than that in which one resides, unless there exist between said nations a reciprocal tax agreement. The United Kingdom and Canada have just such an agreement.

On moving from the UK to Canada there is a supposedly relatively simple procedure to follow to ensure that one stops paying tax in the former and commences so doing in the latter. Of course, such things rarely turn out to be simple in practice, though that has much to do with the degree of tax complexity to which one is subject.

In my case the situation was complicated by the following factors:

• I retired part way through the 2015/2016 tax year. I paid income tax at above the basic rate on my salary until that point.
• I was already drawing two of my three employer’s pensions from the start of the year. These were also being taxed at the higher rate.
• When I retired my final pension kicked in, though of course my salary stopped at the same time. I was still being taxed at the higher rate even though my income no longer merited such.
• Two weeks after retiring we moved to Canada and I became a tax resident here. My pension incomes are all paid in the UK and transferred monthly to Canada, but because the UK uses PAYE (Pay as you earn) I was still seeing tax deducted at source in the UK. I was thus for a period being effectively taxed in both countries – though in Canada (which does not have PAYE) payment was not due until the end of the tax year.
• We sold our property in the UK a week before leaving the country. Normally the sale of one’s primary residence in the UK does not attract capital gains tax. We had – however – been living in a rented apartment for our last four years in England, and had tenants in our apartment. In such circumstances the rules are different and capital gains tax can come into play.
• The UK and Canadian tax years do not coincide. In Canada the tax year runs quite logically from January 1st to December 31st. In the UK – as you might expect – the situation is quite different and the year runs from April 6th to the subsequent April 5th.

I fear that I can only subject myself to a certain level of tax contemplation at any one sitting. A subsequent post (or posts!) will thus be necessary to guide the gentle reader through how the process of tax transfer was effected in our case.

Something to look forward to!