Many seniors don’t realize that pensions paid out to them must be declared as part of their taxable income each year – even though that income may not be taxable if the senior was still resident in that country. As a result, seniors can accumulate 10 or 20 years of income that has never been reported. It can add up to a horrendous tax problem when it comes to light.
Unreported foreign pensions certain will appear during an assessment or audit. Otherwise it’s most likely to be revealed when your heirs settle your estate. The Agency will question the source of the income that cannot be accounting for in the senior’s employee pension, Canada Pension Plan or OAS benefits. In some cases, the senior’s heirs are not even aware that there is a foreign pension. The burden to pay the tax, with civil penalties and daily interest, falls on them and must be discharged before the estate can clear probate. It’s not a pleasant legacy to leave behind. Many seniors, once they realize that they have been evading tax, consider the Amnesty option.
The best protection is to report all sources of income received from anywhere in the world. Omitting any income source creates a scenario of “I didn’t know I was supposed to report that” which carries absolutely no weight with the Agency.
Ask a tax professional to assess your income and help you accurately report everything. A well-informed tax professional will know what income sources are subject to income tax. Most important, if you haven’t been reporting your foreign pension income, seek an Amnesty before you file your next return.