Author Topic: Canadian Pension Income, Canadian Employment Income, Philippine Income Tax  (Read 4385 times)

Offline starrt

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Hi,

DISCLAIMER: I am not a tax accountant or tax lawyer, and am only passing on general information to anyone that may need it. Always consult with the appropriate government agencies regarding your own situation, and if necessary, get a professional to help you out.

In preparation for my upcoming move to the Philippines, hopefully before the end of this year, 2015, I spoke to the Canada Revenue Agency (CRA) about my particular situation.

I will continue to earn a salary from a Canadian corporation for the work that I will continue to perform, after I move to the Philippines, technical support by telephone and internet to Canadian clients. Due to the tax treaty between Canada and the Philippines, because I will be deemed a non resident for tax purposes, I will receive my salary without any employment deductions, that is, the gross amount. I will have to file an income tax return in the Philippines on my earned employment income and pay whatever taxes are applicable in the Philippines.

By the time I move to the Philippines I will be receiving CPP (Canada Pension Plan) and OAS (Old Age Security). I will have to inform Services Canada of my move, and they will deduct 25% as withholding tax from my payments. I will then have to file a Canadian income tax return for this income, as it does not fall under the tax treaty. I will also have to inform any Canadian companies from whom I receive dividends of the move, and they will also be deducting 25% withholding tax. There are options and forms to reduce those amounts, which I won't get into here.

The benefit in filing a Canadian income tax return is that I can then claim all of the allowable medical expenses that I incur in the Philippines as tax deductions.

Hopefully this will help other Canadians in planning their moves to the Philippines.

Thomas

Offline melissag

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Hello,

This is my first time to post here.  I'm a Canadian- 30 years old- living here for a few years, 2013 and 2014 on work contract where I was making ~12,000 CAD a year (in peso from a Philippines source).   Now I'm trying to get my Philippine citizenship (my mom's Filipina, but I was born in Canada).  I'm still living here but with freelance income as a yoga teacher/independent researcher.

I have income from a Canadian source as of August and I'm wondering how to deal with it in terms of taxes/pension.  I've been paying taxes here the last two years (but not SSS etc), and before that I paid Canadian taxes.   I haven't been paying into the CPP or filing in Canada the last two year because I figure i'm not a resident and had no Canadian income.

I know most folks here are retired.. I'm trying to figure out how to do all this right, so that I don't have to pay back taxes and even make the most of the CPP etc.  And of course I don't want to be double taxed for 2015. 

I'm not sure if I plan to settle here forever...  I'm happy here, in love and all...  I have a simple life, not a big earner or spender, but want to make sure I'm doing it right and setting myself up for the future whether I end up staying or moving back to Canada.

Any thoughts on whether I need to file a Canadian tax return for 2015, whether I'm a non-resident?  Whether it would be better to file as a deemed resident?

This is probably a complicated question so I'm also open to talking with a professional and could use a good referral :)

Thanks!

Offline bigrod

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melissag,

Welcome to the forum.  Not being Canadian I cannot offer much help.  Since you are new would you mind introducing yourself again in the Meet Your Neighbors topic so all the members will know you are new.  Thanks.

Chuck
Life is  to short not to live it right the first time

Offline Art, just a re(tired) Fil-Am

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melissag,

Welcome to the board, I too am not a Canadian so no help from me either, but we have a member, his name is Thomas on here from Canada on his way to the Philippines to retire and if he reads your post he just may able to shed some light about your situation dealing with your Canadian tax issues, since he is sort of in the same boat as yourself. So in the mean time, just hang in there until he or some one from Canada can answer your main topic question.
I understand that you are applying for your dual citizenship, if you have any questions concerning the subject and need help, just ask anything under the appropriate category.
Yes, tell us more about yourself.

Thanks from me too!

Mods: I guess the Welcome Bot is still not working!
"Life is what we all make it to be"!
"It's always a matter of money"!
"Do on to others as they would do on to You, but do it first"!
"Different strokes for different folks"!
"Que Sera Sera"!

Offline Hestecrefter

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melissag,

The following link to the Canada Revenue Agency website should lead you to answers.

http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html

Whether you have to file a return and pay taxes in Canada depends both on your residence status and, if you receive income from a Canadian source, as you say you do, the nature and source of that income determines whether it is taxable in Canada.

From the sparse information you have provided, my guess is that you would be considered a "non-resident" in Canada.  But the CRA website gives examples of ties to Canada that can make you a deemed resident. 

As contained in the information on the site to which I have provided a link, you will see this:

"If you want the Canada Revenue agency's opinion on your residency status, complete either Form NR74, Determination of Residency Status (Entering Canada) or Form NR73, Determination of Residency Status (Leaving Canada), whichever applies, and send it to the International and Ottawa Tax Services Office. To get the most accurate opinion, give us as many details as possible on your form."

So, while the info provided on the site is reasonably detailed and should enable you to answer your questions (better than any of us here guessing about your situation), if you are left with any doubts and want to be meticulously observant of the law, I would suggest taking the CRA up on its magnanimous offer to provide guidance. 

I think it can fairly be assumed that all taxing authorities deal with taxpayers, or potential taxpayers, with punctilious observance of fairness principles and would never provide self-serving information that favors the taxman.  While I have not looked closely, I am sure all Canadian currency is inscribed thus:  "In the CRA we trust".  So we can be confident that if you inquire of the CRA, you will be told you are taxable only if the law admits of no other interpretation.

Offline iamjames

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Doesn't your years of Tax paying make a difference to your pension? If so I would consider it best for any foreigner to continue registering for tax in their native country rather than opting for non-residential status.

Offline Hestecrefter

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iamjames,

Years of paying tax is not what counts towards entitlement under the Canada Pension Plan.  It must be tax on employment income, including self-employment.  Actually, paying tax is not what triggers the requirement to contribute to CPP and it does not determine entitlement.  In Canada, one pays tax on various forms of investment income, interest income, rental income but, regardless of the magnitude of that income or amount of tax paid, it won't count at all towards eventual CPP entitlement.

For those working as employees in Canada, or considered to be in Canada for tax purposes, both the employer and the employee must contribute a percentage of earnings to the pension plan, up to a certain maximum each year. The "maximum pensionable earnings" for 2015 is CAD53,600. Those self-employed must pay in both the employer's and employee's share.

Also, insofar as melissag is earning income in the Phils from an employer there (apparently), while I have not checked on the CPP website, I would very much doubt that she (the moniker "melissag" suggests a female) would be permitted to report that income in Canada, have the CPP premiums paid on it, and have it counted as pensionable service under the CPP. 

In short, I do not see many cases in which one may "elect" to have income counted as income for CPP purposes.  The rules regarding residency and income nature and source will govern, regardless of individual preference or choice.

Finally, CPP pays a pittance.  I have contributed the max for nigh on 30 years. That might get me about CAD750/mo. at age 65.  One needs about 40 years of contributions to top out.  Even then, the max pension in 2015 is the princely sum of CAD1,065 per month, or about USD800.  According to the CPP website, the average recipient is getting about half of that.  So the point is, it's hardly worth thinking about.  It won't be sufficient live as a squatter in the Phils, never mind anywhere else.  As Art pointed out in another current tread, today, a monthly income of about USD5,000 is needed to live with a modicum of comfort in the RP.  Even the max CPP benefit won't help much in meeting that requirement.

Offline Art, just a re(tired) Fil-Am

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iamjames,
Finally, CPP pays a pittance.  I have contributed the max for nigh on 30 years. That might get me about CAD750/mo. at age 65.  One needs about 40 years of contributions to top out.  Even then, the max pension in 2015 is the princely sum of CAD1,065 per month, or about USD800.  According to the CPP website, the average recipient is getting about half of that.  So the point is, it's hardly worth thinking about.  It won't be sufficient live as a squatter in the Phils, never mind anywhere else.  As Art pointed out in another current tread, today, a monthly income of about USD5,000 is needed to live with a modicum of comfort in the RP.  Even the max CPP benefit won't help much in meeting that requirement.
That's sad to read what Canada's maximum pension amounts are depending on one's contribution to their tax system and to what their pay scale are, but I could only assume that because of what free benefits Canada provides their citizens, of what they are I haven't a clue.
What is Canada's average pay scale and tax bracket in comparison to that of the U.S.?
Not to insult or offend anyone from Canada, I couldn't live in the Philippines on a Canadian pension of what I read on here. I am not being boastful or bragging what some U.S. citizen's pensions are, but that is what some do earn, but it really depends on one's earning power and contribution to the tax system in the U.S. and maybe depending on which state one lived in.
I know a few retired Fil/Am couples living in our subdivision from the U.S. and Canada who both worked 40 yrs or less and their combined total monthly pensions comes to around $5,000, $8,000 and or $10,000! I would say WOW to that and I do! That's an adequate pension to live on anywhere in the Philippines and or in any non-snobbish and or uppity country with an attitude! :o
We would have stayed in California only if I had the adequate retirement pension (my wife never worked in the U.S.) at that time when I retired at age 49, but it wasn't meant be with my meager pension when I retired in 1997. So, a year later, we moved to the Philippines with just "a leap of faith", but we've now been here going on 18 yrs and life is wonderful!
We only moved to Philippines due to the low cost of living, because when I retired we couldn't afford to retire and still live in N. California at that time back in the late 90s.   
« Last Edit: October 16, 2015, 06:13:34 AM by Art, just a re(tired) Fil-Am »
"Life is what we all make it to be"!
"It's always a matter of money"!
"Do on to others as they would do on to You, but do it first"!
"Different strokes for different folks"!
"Que Sera Sera"!

Offline Hestecrefter

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It is a bit sad, Art. From the 2013-14 CPP Annual Report we learn this:

"The amount of contributorsí pensions depends on how much and for how long they have contributed and at what age they begin to receive the benefits. In 2014, the maximum monthly retirement pension was $1,038.33, and the average payment in 2013-2014 was $535.96." 

That's about $400 U.S.  I am not surprised.  Very few people manage to stay employed steadily for about 40 years, earning the max CPP contributory rate.

I should add, however, that it's a bit less bleak in some ways than the picture I have painted.  In addition to CPP, most Canadians get the federal Old Age Pension at age 65.  I think it pays a max of about $570 a month at present.  It is not related to work, or contributions, but just to putting in your time in Canada.  Anyone who has lived in Canada for at least 10 years after age 18 qualifies.  To get the max amount, you have to put in 40 years.  For people with low incomes, they can also get the "Guaranteed Income Supplement" of up to $772 per month. For those with incomes over about $70,000 per year, the OAP gets reduced, down to zero by $118,000 per year.

Art, as for your query about average tax brackets, pay scales, I have lived and worked in both Canada and the U.S. and, overall, my observations are that wages on both sides of the border are similar, for similar work.  U.S. taxes are, overall, lower.

As is occurring in the U.S. right now, employees are being told not to count on things such as social security payments, or Canada Pension Plan payments, to allow one to live in retirement.  Those things should simply be looked at as providing a bit extra.  Both governments are telling people to find other ways to fund retirement.  In both countries, the "traditional" pension from one's employer is dying out.  Fewer and fewer companies provide pension plans.  So, it's become 401ks, Roth IRAs and, in Canada, RRSPs (registered retirement savings plans) that we are told to look to.  Those tend to relegate to the individual the duty to save, invest, manage, etc.  Some are better at it than others.  Some are abject failures.  Even the most prudent investor can be hit hard my market downturns, etc.

It appears to me that traditional pensions are now enjoyed primarily by those in government jobs, at the various levels of government.  They are the envy of many.  With good reason.  In Canada, a great many government pensions work like this:  you take the average of your best 5 years' salary (usually your last 5 years).  You earn 2% of that average figure for each year of contributing (along with the employer) to the pension plan, to a max of 70% after 35 years.  So, someone who started at age 20 and retires after 35 years at age 55, would get a pension of $70,000 a year if they were earning $100,000 in the last 5 years.  Those amounts are almost always indexed for inflation.  No worries about unfunded liability, should that occur, because the taxpayers will, in effect, fund the shortfall.  So that pensioner will get his $70,000 a year, plus CPP, and a portion of the OAP. 

The unfortunate reality for many is that they never were members of a pension plan and were never diligent about saving for retirement.  While governments have sought to encourage saving, by making contributions tax deductible and eventual withdrawals taxable, many people fall woefully short of the mark in arriving at age 65 or so with significant sums stashed away.  Some of those fall for the lure of the totally false mantra of "Live like a king in the Philippines for $1,000 a month." 

Offline starrt

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No wonder my ears were burning  :P hehehehehe...did somebody mention my name here? (just joking)...

I have read what everyone has written and I have to say that what Hestecrefter has written pretty much covers the CPP and OAS situation.

As for Meliisag, as I keep saying each and every time that taxes, pension, etc are discussed, each person's situation and tax liability is different, and everyone has to get the proper answer directly from the government. The CRA (Canada Revenue Agency) has a toll free number and will also accept collect calls. Mellisag has to call them and give them all of her information, employment, etc, and they will let her know if she is deemed non resident or not for taxation purposes in Canada. There also has to be a determination on whether or not her income is taxable in Canada. As for recommending somebody to talk to, first try the Canadian government, as it will only cost you time. After that check with the major international accounting firms to see if they have anyone in their office with experience in dealing both with the CRA and the Philippine BIR for individuals. The tax treaty between Canada and the Philippines covers all sorts of incomes, except for CPP and OAS.

Please keep us informed as to what you find out, to help others here.

Thomas

Offline Art, just a re(tired) Fil-Am

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Re: Canadian Pension Income, Canadian Employment Income, Philippine Income Tax
« Reply #10 on: October 16, 2015, 07:43:02 PM »
Thomas,
I guess you are not the only Canadian on here, since Hestecrefter was already here and explained the subject topic with a very knowledgeable and precise explanation. 
Thanks Hestecreter and to you too Thomas!
BTW, the way my wife explained it to me is that if you hear a gecko croaking, it means people are thinking and or talking about you, in a nice way of course and or you should be expecting unannounced or unwanted visitors or you will be coming into some money from whomever!
"Life is what we all make it to be"!
"It's always a matter of money"!
"Do on to others as they would do on to You, but do it first"!
"Different strokes for different folks"!
"Que Sera Sera"!

Offline melissag

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Re: Canadian Pension Income, Canadian Employment Income, Philippine Income Tax
« Reply #11 on: October 16, 2015, 10:08:29 PM »
Thanks all for you generous replies!  I will follow up with the online sources (and that toll-free number) suggested here.  Looks like the Can gov is the best source to make a determination of residency...  I'll let folks know what I discover.  Thanks again!

 


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