RRSP Flashcards
- Last year you have basic salary 32,000 plus commissions of 8500. You paid 540 union dues. You setting up small business and incurred a net business loss of 2200. You earned interest of 320 on savings and net rental income of 3180. Wht is your earned income to calculate RRSP contributon room
a. Basic Salary 32,000
b. Commission 8500
c. Loss 2200
d. Net rental income 3180
e. and you can deduct union dues as well -540, total 40940
- You live in province doesn’t have legislation protecting RRSP from Creditors. You has 120K in non-locked in RRSP, which you contributed 5000 in the past 12 months. You has 60,000 in locked in RRSP, to which you transferred 10,000 in the past 12 months. The beneficiary of RRSP is disabled daughter.
a. If you declare bankruptcy today, what is the max amount that your creditor could make in claims against your RRSP
i. Amt 5000
ii. Only non-locked RRSP, federal exemptions
- A couple married 23 years, residents of a PRIVNCE that DOES NOT have legislation protecting RRSPs form Creditors. Wife has 120K in RRSP, you contributed 5000 in the past 12 months, benefiiciayr is Daughter, husband has 160K in RRSP, contributed 8000 in the past 12Month, beneficiary is estate.
a. Upon wife’s death, the assets in wife rrsp are creditor proof
i. As beneficiary is daughter. If the proceeds are payable to named beneficiary, the creditors cannot make a claim upon them upon the death of the annuitant]
b. While husband is alive, Assets in his RRSP, except the contributions during the last 12 months are creditor proof.
i. Federal legislation exempts property in RRSP, other than property contributed to any such plan or fund in the past 12 months before the date of Bankruptcy
ii. So, while hus is alive, the assets in his RRSP, except contribtions during he last 12 months are creditor proof.
You are 74 and wife is 67, can you contribute to RRSP
You cannot contrbite RRSp to you own name, but you can contribute to spousal rrsp
RCA- Retirement Compensation Arrangment
a. A retirement compensation arrangement RCA allows employers to pre-fund retirement benefits without using an RRSP or a pension plan.
b. RCA, retirement benefits are not registered plan, they are not registered with CRA, they do not affect RRSP contribution limits.
c. Employer and Employee can fund them well beyond RRSp or even pension max limits
d. The company makes contributions to the RCA, which is an inter-vivos taxable trust. Contributions are deductible by the employer for tax purposes since they are considered a cos t of business, much like an employee’s salary
- An Advanced life deferred annuity ALDA defers payments till what age
a. 85
- IPPS are DBPPs that are structured for just one person. There are two types of IPPs, for connected person and non connected person, what constitute connected?
a. Connected—owner mangers who own more than 10% fo the shares of the company, or who do not deal at Arm’s length with the employer
b. Connected persons plan – For owner managers who own more than 10% of the shares of the company or who do not own any shares
c. Non-connected person plan for those who own less than 10% of the shares of the company or simply do not own any shares
- How group RRSP works - similar to individual RRSPs, employer usually makes contributions on behalf of the employee or matches employee contrition up to a certain amt
a. Employer contributions are vested immediately. They become the property of the employee regardless of whether h/she leaves the employer shortly thereafter. This is different from pension plan for which a 2 year vesting period is typical
b.
Group RRSPs are governed by tax legislation, not pension legislation
c. The total of the employer and employee contributions are limited to 18% of the employee’s earned income form the previous year
- RCA- retirement compensation agreement is an inter vivos (living) taxable trust governed by trust deed and not the Income tax act.
a. It will not produce a pension adjustment and will not have an effect on employee’s RRSp contribution limit.
- What is the deadline for employer contributions to an RPP for the year?
a. Not 60 days after the end of this year –Wong
b. 120 days after the end this year
c. Employer contributions to pension plan must be made within the taxation year, or up to 120 days after the end of the taxation
d. Employee must contribute to their own RPP by dec 31 of the tax year
- What Penalty Applies when Non-Qualified investment is held within RRSP?
a. A special one time tax of 50% of the market value of a non-Qualified investment will apply (Regardless of if it was non-qualified when purchased or thereafter)
b. The tax is levied immediately if it was non-qualified ae the time of purchase
c. If investment was already held in the RRSP and later becomes non-qualified, the tax is levied at that point, although the investor is given some time to remove the investment from the RRSp once it no longer qualifies
- What options does a dependent child named as beneficiary of a deceased parent’s RRSP have?
a. A dependent Child or grandchild under the age of 18 has the following two options
i. Take the full amount as income and pay massive tax on the full amt
ii. Use the funds to buy a fixed-term annuity to age 18 and pay tax in the year of each payment
iii. If the kid is financially dependent due to physical or mental disability, kid have the same options available to surviving spouses
- RRSP and RRIFs are creditor-proof; however, there is a recovery provision in some provinces that stipulates that any contributions made in the pat 12 months may not qualify for creditor protection, subject to provincial bankruptcy rules
- Can a deceased taxpayer make a contribution to a spousal RRSP in the year of death?
a. Yes! Contributions to a spousal RRSP can be made even after the taxpayer dies
b. The executor can make a contribution on the taxpayer’s behalf in the year of death or up to 60 days after the end of the year in which the taxpayer died, ie. The normal rrsp contribution deadline , up to the deceased’s contribution limits
- Withholding tax of w/d from RRSP
b. Same as pay chq, employer deducts withholding tax. CRA wants tax money forward to them on a pay as you go basis, although you will either owe more or be entitled to a full or partial refund when your annual tax return is completed
c. Likewise, when money is wd’d from RRSP, the plan administrator is required to withholding a certain amount of tax , based on amt of w.d
- If you are part of pension plan, resign, what options
a. Funds can remain in the pension plan and continue to grow
b. Be transferred to a locked-in retirement account (LIRA), also known as Locked-in RRSP
c. Some provinces may have pension legislations that permits early unlocking of some or all of the pension fund under certain conditions – financial hardship
Dont confuse of DPSP with Pension plan
- DPSP is deferred profit sharing plan… can transfer to RRSP
- Pension plan, can tranfer to LIRA
discretionary managed account –
a. Qualified Portfolio managers make all investment decisions
b. Each clt portfolio is unique and holds different securities
- Contribution to spousal RRSp plan must remain the in the pan for the remainder of the contribution year plus the next two full calendar years.
a. If the funds are w.d sooner than this, will be taxed back in the contributor’s hands.
b. What are exceptions to the rules
i. The withdrawal is taking place after marital breakdown
ii. Either spouse no longer resides in Canada at the time of w.d
iii. The contributing spouse died in the year of withdraw
- When in kind RRSP contribution, is the tax receipt based on ACB or the fair market value at the time of the transfer
a. The fair market value at the time of the transfer..
b. You will get an RRSP contribution tax receipt based on today’s market value
c. If the market value is more than what was paid for the shares, you will have to pay tax on the applicable capital gain to date,,, this is know as ‘Deemed’ disposition because the shares are actually being sold
d. If the FMV is less than what was paid for the shares, the individual will not get to claim the capital loss.. in this case, it may make more financial sense to sell the shares and contribute the proceeds – cash to the RRSP..
e. If an investment with accrued interest, such as bond, is being contributed, the amot of contribution ill include the accrued interest earned up till the date of transfer…the accrued interest will also need to be claimed as income because it is also part the deemed disposition
Life Income FUND LIF–For locked in RRSP/LIRA
- funds remaining at age 80 must be used buy Life Annuity
Locked in Retirement Income Fund - LRIF - Used in some provinces, similar as LIF
– but no required annuitization at age 80
