My wife had worked in Kuwait for a number of years and was granted a retirement in May of 2000. She qualified for a disabled retirement (Kuwait is quite generous with their new law for the disabled) but she was granted a retirement classification one level above this, a medical retirement. My wife was given a 95% pension and the right to cash in part of this in exchange for a lump sum.

She received approximately $100,000.00 Canadian cash for cashing in part of the pension and receives now a monthly payment ( for life) of $2,500.00.(Can) Our question to you is;

a) If she brings this lump sum into the country is it taxable as income?

b) Is her pension of $2,500.00 taxable?

c) Does it have any bearing on taxation if the funds are placed in her own private bank account, a joint account or my private account.

Please keep in mind that in Kuwait there is No income tax or sales tax of any kind. Also my wife has a three year visitor VISA. We await your advise and look forward to hearing from you.

Yours truly,
Harry

1. Under the first scenario, you have questioned whether she will be taxable upon bringing the lump sum payment into Canada upon immigration. Generally, there is no income tax on of amounts brought into Canada upon becoming a resident. Once she has become a Canadian resident, she will be subject on any income earned on those funds, regardless of whether they are physically brought to Canada.

2. Alternatively, you have asked as to how the $2,500 monthly pension will be taxed in Canada if it is not converted into a lump sum. Once a person becomes a resident of Canada, he or she is subject to Canadian taxation on his or her world income from that point onwards. To the extent any income tax or withholding taxes are paid in Kuwait, they may be applied to reduce the individual’s Canadian tax as a foreign tax credit. It should be noted that Canada is currently negotiating an income tax treaty with Kuwait and this may have an effect on the taxation of the above.

Finally, it should be noted that the income tax implications above would not change regardless of where the funds are placed.

Disclaimer
The nature of this facility is to provide a general response to a general question. Under no circumstances should anyone act on this information without obtaining analysis and counsel from a qualified advisor with respect to the specific situation.

Phillip Nadler, CA
Richter Usher & Vineberg
http://www.richter.ca