- January 13, 2022
- Posted by: Simon Huften
- Categories: Investing, QROPS, QROPS RRIF, QROPS RRSP
Pension scheme transfers are sheltered from tax with a 60(j)
Income tax is paid when withdrawals are made in Canada
Tax receipts are issued the following year after the transfer has been completed
You can defer income taxes until you start drawing income in retirement
Strata Wealth does not charge a fee to transfer UK pension schemes to Canada
60(j) / T2151 Tax Receipts
When you transfer a QROPS from the UK to Canada into an RRSP or RRIF account, the money is released by the HMRC tax free. The qualified investment company in Canada who receives the funds will convert the amount received from Sterling to Dollars on the same business day. The money is then invested into either stocks, bonds or cash (or a mixture of these) as directed by your investment advisor or yourself.
The investment company in Canada who receives the funds from the UK pension transfer is required to issue a special tax contribution receipt which is referred to as “section 60(j)” or T2151 – Direct Transfer of a Single Amount Under Subsection 60(j). This tax receipt is issued the following year of the transfer and is to be included on the client’s tax return.
The T2151 form is used when you transfer funds from a foreign pension plan to a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) in Canada. The form certifies that the transfer is being made in compliance with the requirements of subsection 60(j) of the Income Tax Act.
The 60(j) provision allows for the tax-free transfer of certain eligible amounts from a foreign pension plan to a Canadian registered plan (RRSP or RRIF). By using this provision, you can avoid paying tax on the transfer and defer taxes until you withdraw the funds from the Canadian plan.
The client who transferred the pension from the UK to Canada will need to ensure that their accountant processes the 60(j) / T2151 tax receipt correctly as it ensures that the funds from the UK pension scheme are able to come to Canada tax-free and not impact any RRSP contribution room in Canada.
Without the 60(j) / T2151 tax receipt, the entire amount from the transfer from UK to Canada would be taxable to the client. This will result in a very large tax bill from CRA. You can avoid this with the 60(j) tax receipt that is issued after the transfer has been completed. As mentioned above, the 60(j) tax receipt is issued by the investment company who receives the pension funds in Canada.
If you are considering a transfer from a foreign pension plan to a Canadian registered plan, it is recommended that you consult a qualified tax professional to ensure that you comply with all the relevant tax laws and requirements.
Simon Huften at Strata Wealth will walk you through the steps of the entire transfer process as well as assist with ensuring that you receive the tax receipts from the investment provider in Canada so you can include them on your tax return to ensure a tax free transfer of pension assets.
Please contact us today for a free consultation to see if it makes sense for you to transfer your pension funds to Canada.