Income from a Canadian R.R.I F

HI, I am a dual Canadian/U.K. national resident in the U.K. I receive income from a Canadian R.R.I.F, On my Canadian NR4 tax slip my provider reports part of this income as a Periodic Payment and part as a Lump Sum payment The Periodic payment is not taxed in Canada under the Canadian/U.K. tax treaty however the Lump Sum payment is taxed at 25% this being my final obligation to Canada on this income. I report the total income received from my R.R.I.F. on my U.K. self assessment tax return and claim the tax deducted in Canada as a Foreign Tax Credit on my U.K. self assessment return. Is this the correct way to report the income from my R.R.I.F.

Hi,
​​​​​​The guidance at DT4617, advises that 'Where a UK resident makes a lump sum withdrawal from an Registered Retirement Savings Plan (RRSP) or an Registered Retirement Income Funds (RRIF),
Canada imposes a 25 per cent withholding tax:
Double Taxation Relief Manual
No tax credit relief is allowable, which means that the full lumpsum is taxable in both Canada and the UK.  
You can, however, claim a foreign tax credit relief of up to 100% of the foreign tax deducted, against your Uk tax liability.
Thank you.

HMRC Admin 8 — Could you explain what this statement means "You can, however, claim a foreign tax credit relief of up to 100% of the foreign tax deducted, against your Uk tax liability.", after you just said "No tax credit relief is allowable". How is a foreign tax credit relief not allowed, and yet at the same time you state that someone can claim a foreign tax credit relief? I imagine there is a typo or some terms that need disambiguation here. Thank you!

Hi HMHippo
The full details per DT1467 - Where a UK resident makes a lump sum withdrawal from an RRSP or an RRIF, Canada imposes a 25 per cent withholding tax.
No tax credit relief is allowable in the United Kingdom in respect of the tax withheld, however, because the Canadian tax is imposed upon the lump sum withdrawal (which does not itself give rise to a tax charge in the United Kingdom), whereas any UK tax charge is on the disposal of assets held within the Plan or Fund to enable the lump sum to be withdrawn (and no tax is levied on the disposal of fund assets in Canada).
The Elimination of Double Taxation Article (Article 21) obliges the United Kingdom to give credit for Canadian tax paid only against UK tax computed by reference to the same profits, income or chargeable gains by reference to which the Canadian tax is computed.
Since no UK tax is computed by reference to the subject of Canadian tax (that is, the withdrawal), no tax credit relief is allowable.
Similarly, where the disposal of fund assets to facilitate a withdrawal gives rise to a UK tax charge, no tax credit relief is allowable since the disposal does not attract a tax charge in Canada.
From this no FTCR is for the actual pension withdrawal it is only allowable on any assets disposed of within the plan so its is different income.

HMRC Admin 10 — Thank you, that's very clear! I have one more clarification question, related to this forum post (https://community.hmrc.gov.uk/customerforums/pt/62839197-cfc5-ed11-9ac4-00155d9771aa) and my latest post which was confirm by you (?), HMRC Admin 10. If no FTCR is allowable because they are distinct taxable events, does that only refer to the immediate tax obligation at-the-time of the disposal (and at the time of the withdrawal), which would require taxes be withheld in the UK (and Canada)? That is to say—consistent with your confirmation on the other post I linked above—despite there being no FTCR, when it eventually comes time for the year-end filing, the total Canadian tax can be applied to reduce my total UK tax burden? So the lack of FTCR is a cash flow concern, but net taxes at year-end will account for the UK-Canada tax treaty?

Hi HMHippo,

Foreign tax credit relief can only be claimed if UK tax is due on the same source of income.
It cannot be used for anything else. this is based on the end of year total income details and year end filing.

Thank you.
 

Hi HMRC Admin 20—You're saying relief can only be claimed on *the same source only*, not on the total tax liability from a foreign country (e.g., Canada)? Does that mean the UK considers there being two separate sources of income when a UK resident endeavours to withdrawal (the precursor being, first disposing the assets in the registered account) from their Canadian RRSP? Does what you're saying differ from what HMRC Admin 8 said above, and likewise, what HMRC Admin 19 said (on this thread here: https://community.hmrc.gov.uk/customerforums/pt/62839197-cfc5-ed11-9ac4-00155d9771aa)? I quote them both with: "You can, however, claim Foreign Tax Credit Relief of up to 100% of the foreign tax deducted, against your UK tax liability." If yes, yes, and yes/or/no—per the above sequence of three clarifications, respectively—I then ask: on the disposal of assets in the registered account, is the UK recognizing a capital gains tax (assuming marketable securities were held), pension income taxed as part of total worldwide income, or something else?

Hi,

That is correct. You can only set Foreign Tax Credit Relief against the UK tax payable on an equivalent source of UK income.  

If you had foreign bank interest, then only if you had Uk tax to pay on that interest, can you claim tax relief for tax paid overseas on that interest.

Thank you.

Thanks, HMRC Admin 19—One more question: If the Canadian RRSP portfolio was holding Stocks & Shares prior to becoming a UK Resident, and I sold part or all of the portfolio while living as a UK resident (realizing capital gains), how would the underlying capital gains cost basis be determined? Is it (a) the original amounts invested each time I contributed to the fund as a Canadian; is it (b) the fair market valuation at the time of becoming a UK resident; or is it (c) some other method—if so, what? Finally, if the answer were "(a)", would either changing the portfolio composition (e.g., switch from mutual funds and company stocks, to GICs and ETFs) or transferring the portfolio to a different account/institution reset the capital gains cost basis to the current FMV at the time of doing so?

Hi HMHippo,

It is answer 'a'.  for the switching, please refer to HS285 Share reorganisations, company takeovers and Capital Gains Tax (2021) Updated 6 April 2023

Thank you.

With regard to income from an RRIF when returning to the UK from Canada ,so now a non resident of Canada, I have read on a Canadian Banks website that there is an agreement that Canada will not withhold tax on payments if you are a UK resident. So the income will just be taxed in the UK. Is that correct? Thanks

Hi alan Matthewman

DT4605- Where a UK resident makes a lump sum withdrawal from an RRSP or an RRIF, Canada imposes a 25 per cent withholding tax.
No tax credit relief is allowable in the United Kingdom in respect of the tax withheld, however, because the Canadian tax is imposed upon the lump sum withdrawal (which does not itself give rise to a tax charge in the United Kingdom);
whereas any UK tax charge is on the disposal of assets held within the Plan or Fund to enable the lump sum to be withdrawn (and no tax is levied on the disposal of fund assets in Canada).
The Elimination of Double Taxation Article (Article 21) obliges the United Kingdom to give credit for Canadian tax paid only against UK tax computed by reference to the same profits, income or chargeable gains by reference to which the Canadian tax is computed.
Since no UK tax is computed by reference to the subject of Canadian tax (that is, the withdrawal), no tax credit relief is allowable. Similarly, where the disposal of fund assets to facilitate a withdrawal gives rise to a UK tax charge, no tax credit relief is allowable since the disposal does not attract a tax charge in Canada.

Thank you

This is taken directly from RBC banks website. Your answer totally conflicts with what they are telling people. Are they flat out wrong? If you are a non-resident of Canada,generally a withholding tax of 25% applies to your RRIF payment, even if you only receive the minimum amount. The rate of withholding tax that applies may be lower if Canada has a tax treaty with the country where you are resident. A notable withholding tax exception is periodic RRIF payments made to residents of the United Kingdom (UK). There will be no withholding tax on the payments made from a RRIF during a calendar year to a resident of the UK, provided the withdrawal is less than the limits as below: Twice the minimum withdrawal required for the year; or 10% of the FMV of the RRIF at the beginning of the year.

Hi,

We cannot comment on the accuracy of advice provided by the Royal Bank of Canada.  

HMRC guidance at DT4617 advises that "where a UK resident makes a lump sum withdrawal from an Registered Retirement Savings Plan (RRSP) or an Registered Retirement Income Funds (RRIF), Canada imposes a 25 per cent withholding tax".  

DT4617 - Double Taxation Relief Manual: Guidance by country: Canada: Withdrawals from Canadian RRSPs/RRIFs

No tax credit relief is allowable, which means that the full lumpsum is taxable in both Canada and the UK. You can, however, claim a foreign tax credit relief of up to 100% of the foreign tax deducted, against your UK tax liability.

Thank you.