Residency and Taxation during Secondment to Canada

[DoctorG]

I have been a UK resident since birth but am temporarily in Canada on secondment from my UK employer so need to determine my tax residency situation.

I left the UK on 13 July 2017 and am due to return to the UK a year later. I remain employed by my UK employer and my income is from this and savings/investments in the UK. I own my home in the UK (currently rented out) and am renting furnished accommodation in Canada.

It would be easiest if I remained a UK tax resident so I qualify for personal allowance and don’t have to deal with tax in Canada (they would consider me a deemed non-resident if UK tax resident and planning to return). Looking at RDR3, this appears to be the case for 2017/18 tax year:
- First automatic UK test – fail as only 99 days in the UK
- All 3 automatic overseas tests – fail as too much time in the UK already
- Second automatic UK test – PASS as spent many years in home in the UK of which > 30 fall in the tax year without an overseas home

I would not qualify for split year treatment as I plan to return to the UK (so would meet the first automatic UK test in 2018/19). Is that correct?

However, if I decide to move to Canada permanently instead, I will likely return for a short period to the UK (in July-August 2018) before emigrating permanently. What is the best tax approach to this?

I could work for fewer than 31 days and spend less than 91 days such that I meet the third overseas test and become a UK non-resident in 2018/19. I think then split year treatment case 1 would apply to the prior tax year (2017/18). Alternatively, I could work a bit longer then leave so the split year treatment starts from 2018/19. I’m not sure how this affects my taxation and being able to claim personal allowance (since income is at present from UK).

[darthblingbling]

The second UK test will fail if you have a home in Canada during your employment to which HMRC will deem a 'home'. This will depend on the level of permanence and other facts.

Ask yourself if the common man on the street would consider your accommodation as a home. HMRC has some example cases in Annex A on the RDR3 document you read.

[AmanSood]

As a Canadian Non-Resident you would still be taxable on your Canadian sourced income.. so if you remain UK tax resident then the UK would have to give a credit for any tax paid in Canada...

[DoctorG]

The second UK test will fail if you have a home in Canada during your employment to which HMRC will deem a 'home'. This will depend on the level of permanence and other facts.

Ask yourself if the common man on the street would consider your accommodation as a home. HMRC has some example cases in Annex A on the RDR3 document you read.

I read the RDR3 document and this does not seem to agree with what you are saying. I was in the UK for the first 99 days of the tax year WITHOUT an overseas home. Whilst I agree that I would now be considered to have an overseas home since I am renting somewhere, I did not have this during the period in which I was in the UK (which is actually what seems to matter in the examples). See example 5 on page 19.

[darthblingbling]

Sorry I missed the bit in which you were in the UK for 99 days

[DavidTreitel]

Ignore all the discussion about domestic rules discussed above. Ask yourself, for the purposes of the Canada/UK treaty in which jurisdiction are you tax resident as this may produce a better result overall.

[maths]

David Treitel's comment is I suggest misleading.

First, it is necessary under the domestic laws of the UK and Canada to ascertain for the period concerned whether you are resident in only one of the countries or both.

Second, assuming residence in both then the tie-breaker test in the UK/Canada DTA seeks to resolve the dual residence.

Third, if residence is resolved in favour of Canada then any earnings qua employment exercised exclusively in Canada are not subject to UK income tax but will be taxed under the domestic rules of Canada.

If on the other hand residence is resolved in favour of UK then any earnings qua employment exercised exclusively in Canada are subject to UK income tax but may also be taxed in Canada depending upon the the Dependent Services Article of the DTA. If taxed in both the UK and Canada then any Canadian tax is creditable against any UK tax charge.