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TAXX301 (ch.10)
Retirement Savings and Other Income
| Question | Answer |
|---|---|
| what is the two step process for planning for retirement? | 1. federal government provided pension benefits (CPP and OAS) 2. taking advantage of incentives in the form of retirement planning arrangements like RRSP's |
| what are the 6 private retirement savings arrangements? | 1. RRSP's 2. RPP including IPP 3. RRIF's 4. Pooled RPP's 5. DPSP's 6. target benefit plans |
| how are employer contributions to RPP's and DPSP's taxed? | - not a taxable employment benefit - included in income upon withdrawal |
| how are contributions by employed individuals to RPP's and contributions by all individuals to RRSP's taxed? | - contributions deductible in current year - tax deferred until withdrawal |
| what is a defined benefit? | employer agrees to provide benefit as % of employees average earnings for each year of service |
| what is a defined contribution? | - employer provides specific contributions - benefit based on specific contributions and acc. earnings - no guarantee to employee as to retirement benefit to be received - benefits received based on amounts contributed and earnings from invested contr. |
| what are the amounts RRSP plan trustees withold for tax (based on amounts withdrawn) | up to $5,000: 10% $5,000 - $15,000: 20% above $15,000: 30% |
| what are the 2 plan options for RRSP's? | 1. managed plans 2. self directed plans |
| what are qualifying investments for self directed RRSP's? | - public shares (unless annuitant owns more than 10%) - mutual fund units - bonds, mortgages (must be insured) - warrants, rights |
| what are non-qualifying investments for self directed RRSP's? | - slow of private companies under influence of individual annuitant, direct investments in real estate |
| what is the RRSP deduction limit? | A+B-C+R A=unused RRSP deduction at year end B=lesser of dollar limit for current year and 18% earned income for previous year - pension adjustment previous year C=past service pension adjustment for the year R=pension adjustment reversal for the year |
| what is the unused RRSP deduction room? | cumulative total of all amounts determined under formula for years prior to current year less amounts deducted in those previous years |
| what is the penalty for excess RRSP contributions? | 1% per month on cumulative excess |
| what is cumulative excess of RRSP contributions? | undeducted contributions - sum of unused RRSP deduction room at end of previous year, RRSP deduction limit, plus $2,000 cushon |
| when are RRSP's terminated? | in year individual turns 71 |
| what is the RRSP homebuyers plan (HBP)? | individual permitted to withdraw $60,000 from RRSP without having to include in net income |
| what are the 3 conditions for the RRSP HBP? | 1. purchase of qualifying home before oct.1 of year following withdrawal 2. must occupy home within 1 year of acquisition 3. cannot have owned a home in previous years |
| what can be done with an FHSA if individual doesn't buy a home, or all FHSA funds aren't used? | can be transferred to RRSP or RRIF |
| what is the conditions for eligibility for an FHSA? | - Canadian resident 18+ and doesn't live in a house they owned in current or 4 preceding years from opening FHSA |
| when is the required termination for an FHSA? | earlier of: - 15th anniversary of opening FHSA - year individual turns 71 |
| what are the maximum contributions for an FHSA? | - $8,000 annually - $40,000 lifetime limit |
| what is the penalty for overcontribution to an FHSA? | 1% per month |
| can a home be owned before an FHSA withdrawal is made? | no |
| what is the purpose of the lifetime learning plan (LLP)? | allows individual to borrow from RRSP's on tax-free basis to finance own education or education of spouse/CLP |
| what are the general rules for the LLP? | - repaid over 10 years - $10,000 withdrawal limit in any calendar year - $20,000 max over 4 calendar years |
| when must HBP's and LLP's be repaid if individual ceases Canadian residency? | earlier of: - filing date for year of departure - 60 days after becoming non-resident (or else unpaid balance included in net income) |
| how are unmatured RRSP's treated when annuitant dies? | - FMV of all property in RRSP at time of death deemed received immediately before death by annuitant - included in deceased net income |
| how are matured RRSP's treated when annuitant dies? | - FMV of all remaining annuity payments at time of death deemed received immediately before death by annuitant - included in deceased net income |
| how are RRSP assets distributed on death of annuitant? | - assets transferred immediately at death at FMV - no probate fees (unless RRSP funds become part of deceased's estate |
| what is the exception for death of RRSP annuitant when it's an unmatured RRSP and the spouse is the sole beneficiary? | no income tax consequence to deceased or spouse if transfer to RRSP with spouse as annuitant |
| what is the exception for death of RRSP annuitant when it's a matured RRSP and spouse is sole beneficiary? | - no income tax consequences to deceased - spouse includes annuity payments and net income |
| how are HBP and LLP balances treated when RRSP annuitant dies? | included in deceased's net income (spouse can elect to assume position of deceased and continue payments) |
| what is the problem polled registered pension plans (PRPP's) aims to solve? | many individuals don't save for retirement |
| what is a PRPP? | pooled registered pension plan - money purchase plans sponsored by financial institutions - employers responsible for enrolling employees |
| what is an RRIF? | registered retirement income fund - only transfers from other plans - no deductible contributions - continuing tax deferral - rollover from RRSP |
| what is a DPSP? | deferred profit sharing plan - employer only contributions - earnings accumulate tax-free - withdrawals subject to tax as ordinary income |
| what is an EPSP? | employee profit sharing plan - employer only contributions - taxable benefit to employee when contribution made - employer can deduct contributions |
| what is an RCA? | retirement compensation agreement - provides benefits of highly paid executives to maintain standard of living (due to limitations to RPP and DPSP) - contribution deductible in year made - not taxable employment benefits |
| what is an SDA? | salary deferral arrangement problem: arrangement to defer tax to year bonus received solution: employee taxed when benefits earned if payment is more than 3 years after payers year end |
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