Chapter 5- Retirement Planning

Question 1

What can be excluded from CPP calculations

Answer 1

1. Any month the person was collecting CPP/QPP disability
2. 17% of the lowest income years during CPP contributory period before 65
   - -> can result in up to 8 lowest income years
3. When the individual was taking care of children under 7
4. Low income months after 65

Question 2

Flat benefits plan
Career average plan
Final or best average plan

Answer 2

flat benefits plan: taking a flat dollar amount and multiply it by the number of years the employee was apart of the pension plan
–> separate from CPP and OAS

Career Average Plan: based on the plan holders average income over their entire career
–> integrated with CPP benefits

Final or Best Average Plan: based on the plan holders average income over the final x amount of years, or their best x number of years

• -> integrated with CPP benefits
• -> Provides better protection against inflation

Question 3

Canada Disability Savings Grant (CDSG)

Canada Disability Savings Bond (CDSB)

Answer 3

Canada Disability Savings Grant (CDSG): federal government will provide matching grants on the amount contributed and the beneficiary family income

• maximum annual grant is $3500 and maximum lifetime grant is $70000
• to be eligible beneficiary must be under 49 and eligible for the disability tax credit

Canada Disability Savings Bond
- based on beneficiary age and net family income
- a contribution does not need to be made to recieve
maximimum amount of CDSB: $1000 annually and $20000 lifetime

Question 4

RDSP

Answer 4

1. contributions not tax deductible, investment growth is tax sheltered
2. maximum contribution limit is $200000, no annual limit
3. if anyone makes a contribution the money becomes property of the beneficiary
4. principal is received tax free but withdrawals of investment income, grants, bonds taxed in beneficiary hand
5. contributions can be done until 59, but the Canada disability savings grant is received until 49

Question 5

RRIF Withdrawal Formula

Answer 5

Before 71:
1/(90-age)

After 71: withdrawals based on a percentage prescribed by CRA that increase every year levelling out at 20% at age 95

at 71 it is 5.3%

Question 6

What happens when RRSP plan holder dies

Answer 6

Non Qualified Beneficiary: Full RRSP s deemed to be withdrawn by the deceased the minute before their death and will be added to the final tax return and fully taxed

Qualified Beneficiary

1. Surviving Spouse
   - 1. take the full amount and pay taxes
   - 2. rollover to RRSP and pay tax when the funds are withdrawn
2. Grandchild/Child under 18
   - 1. take the full amount and pay taxes
   - 2. Buy a fixed income annuity to 18 and pay tax on each payment
3. Grandchild/Child who is financially dependent due to a physical/mental disability
   - 1. take the full amount and pay taxes
   - 2. rollover to RDSP if contribution room is available

Question 7

RRSP Withholding taxes

Answer 7

up to $5000- 10%
$5001-$15000- 20%
$15000.- 30%

Question 8

Non-Qualified Investment for RRSP

What are the penalties for Non-Qualified Investments

Answer 8

1. Jewelry, gems, etc
2. Future financial contracts
3. Real Estate except REITS
4. Personal use property such as art
5. Shares and Debt obligations of a private corporation

A special one time 50% tax of the market value for the non-qualified investments apply

• -> tax is paid right away if something was not non-qualified and then becomes non-qualified than the tax is done when the investment becomes non-qualified
• -> if it was an honest mistake the tax will be refunded at the end of next year

Question 9

When do attribution rules not apply for a Spousal RRSP?

Answer 9

1. Withdrawals taking place after a marital breakdown
2. Either spouse no longer lives in Canada at the time of the withdrawal
3. The contributing spouse died in the year of the withdrawal

Question 10

johnny is apart of a DPSP he is in a 43% MTR he can have $25000 in cash or shares that are worth $25000 with an adjusted cost base (ACB) of $15000, what would be the tax savings?

a) 10750
b) 6450
c) 2150
d) there would be no advantage

Answer 10

c)
taken as cash
$25000*43%= $10750

taken as stock 
$15000*43%=$6450
capital gain portion
25000-15000=10000/2=5000*43%=$2150
$2150+$6450=$8600

Tax savings
10750-8600= 2150

Question 11

jim and carry have been married for 25 years and are about to retire. they have been contributing to cpp for 40 years, jim is entitled to $750/month and carry $450/month. if they decide to split their CPP what can each person recieve?

Answer 11

25/40= 0.6250 (62.5%)
jim can split $750 * 62.5%= 468.75 therefore he must keep $281.25
carry can split 450 * 62.5%= 281.25 therefore she must keep $168.75
total split= 468.75+281.25= $750
$750/2= $375
jim= 281.25+375= 656.25
carry= 168.75+375= $543.75