Ch 10 Retirement Savings Plans

Question 1

How are capital gains taxed on an RRSP

Answer 1

the entire value of a withdrawal is fully taxable as income when withdrawn

Question 2

Can The assets of an RRSP be used as collateral for a loan?

Answer 2

No

Question 3

The RRSP contribution limit for a particular year is based on earned income. what is included?

Answer 3

taxable spousal support received, net rental income, and disability payments from the Canada Pension Plan

Question 4

NON-QUALIFIED INVESTMENTS FOR RRSPs

Answer 4

• Shares and debt obligations of private corporations, unless certain prescribed conditions are met
• Real estate (although REIT units are qualified investments)
• Commodity and financial futures contracts
• Listed personal property, such as works of art, jewellery, rare manuscripts, or stamps
• Uncovered call options and all put options

Question 5

tax consequences of in-kind RRSP contribution

Answer 5

• The transfer of marketable securities is classified as a taxable disposition.
• Capital gain is taxed at 50% of gain
• Can’t offset a capital loss

Question 6

What is the cumulative excess amount

Answer 6

• Any amount in excess of the allowable overcontribution

* penalty tax of 1% per month is assessed on the CEA

Question 7

BEst strategy for spousal RRSP

Answer 7

• The spouse with the higher income claims the tax deduction, and the spouse with the lower income pays tax on the RRSP amount upon withdrawal.

Question 8

Spousal RRSP: case in which contributor is taxed instead of recipient

Answer 8

if the withdrawal occurs within three calendar years of the contribution to the spousal RRSP.

Question 9

consequence of non-qualified investment in an RRSP

Answer 9

tax penalty of 50% of the fair market value (FMV) of the non-qualified investment is levied against the plan holder.

Question 10

HBP plan offers home buyers two advantages:

Answer 10

• Access to an interest-free loan

* An opportunity to save on mortgage interest payments by making a larger down payment than otherwise possible

Question 11

LIFELONG LEARNING PLAN

Answer 11

• Allows plan holders and their spouses to finance their education with RRSP funds.
• must be enrolled in full-time training or post-secondary education.
• They may withdraw up to $10,000 per year from the holder’s RRSP over a four-year period, and the total amount borrowed cannot exceed $20,000.
• Amounts withdrawn must be repaid to the RRSP over 10 years

Question 12

3 OPTIONS FOR MATURING AN RRSP

Answer 12

• Withdraw all the proceeds as a lump-sum payment, with the entire lump sum included in income in the year it is received
• Transfer RRSP proceeds to a RRIF on a tax-deferred basis
• Use the RRSP proceeds to purchase an annuity

Question 13

WHAT HAPPENS TO AN RRSP WHEN THE PLAN HOLDER DIES?

Answer 13

the FMV of all RRSPs at the date of death is included in the net income of the deceased for tax purposes for the year of death, unless paid to a qualified beneficiary.

Question 14

persons that may qualify as a RRSP beneficiary after death

Answer 14

• The legal spouse or a common-law spouse of the plan holder
• A minor child or grandchild financially dependent on the deceased
• A physically or mentally infirm child or grandchild financially dependent on the deceased

Question 15

Case where RRSP spousal withdawal restrictions don’t apply

Answer 15

• Neither spouse resided in Canada at the time of withdrawal
• The contributing spouse died during the year the funds were withdrawn
• The couple were living apart as a result of a marriage breakdown