Chapter 10

Question 1

A significant tax strategy that is available to retirees receiving “eligible retirement income” is the
ability to

Answer 1

split pension income between spouses

Question 2

Low-income pensioners living in Canada may receive assistance through the..

This is available as part of the..

Answer 2

Guaranteed Income Supplement

Old Age Security

Question 3

two of the key factors that contribute to the accumulation of required savings on retirement
date are…

Answer 3

Time and Money

Question 4

One disadvantage of an RRSP is if the plan holder dies, the entire value of the RRSP is included as income on…

An exception occurs when the RRSP is…

Answer 4

the deceased’s final tax return.

Rolled over to a spouse

Question 5

Funds within an RRSP are most commonly transferred to a registered retirement income fund (RRIF) no later
than

Answer 5

December 31 of the plan holder’s 71st birthday

Question 6

What is the annual contribution room for RRSP’s?

Answer 6

Generally 18% of your earned income from the year can be contributed to an RRSP, but the gov’t does have a maximum contribution limit if you make too much money. In 2024 the limit was $31,560.

Question 7

Other factors limiting or expanding the RRSP contribution amount are ________ _________, as a result of being a member of a registered pension plan (RPP),

Answer 7

pension adjustments

Question 8

The RRSP contribution limit for a particular year is based on _______ _______ of the taxpayer for the previous year and any unused RRSP contribution room the taxpayer may have accumulated.

Answer 8

earned income

Question 9

Earned income includes all income except

Answer 9

most forms of passive income, including investment income (i.e., interest, dividends, capital gains), pension benefits, withdrawals from registered accounts, and payments from a deferred profit-sharing plan (DPSP)

Question 10

To calculate RRSP room you must

Answer 10

apply 18% to your previous year’s income (as long as it is below the RRSP dollar limit for the year) and subtract pension adjustment.

Question 11

What are the RRSP dollar limits for 2023 & 2024?

Answer 11

2023: $30,780
2024: $31,560

Question 12

What are the tax rules when transferring money to an RRSP in-kind?

Answer 12

The securities will be deemed sold. If there is a capital gain when they are deemed sold, you will have to claim 50% of it on your taxes.
If there is a capital loss, you CANNOT claim it for tax purposes. It is treated as a superficial loss since you will still be holding the asset.

Question 13

What is the tax benefit of transferring funds in-kind to an RRSP in January or February of a given year in a capital gain position?

Answer 13

The contribution is made during the first 60 days of the year, it can be used as a tax deduction in the previous tax year. However, the capital gain is only recognized in the year the in-kind contribution is actually made. Therefore, the taxpayer is able to claim a tax deduction one full year before the corresponding taxable capital gain has to be included in the net income of the taxpayer.

Question 14

This carryforward amount, along with the calculation of the new RRSP limit from the previous year, is reported every year to taxpayers on their…

Answer 14

Notice of Assessment

Question 15

Explain overcontributions in an RRSP

Answer 15

You may over-contribute up to $2000 to an RRSP without penalty. It cannot be deducted for tax purposes, and when you withdraw it in the future, it will be taxed as income. The only benefit of overcontributing by $2000 is that it will be tax deferred growth, but it will be double taxed (once now and once when you withdraw it).

Any amount over the $2000 limit will be charged a 1% penalty tax per month. Ex: you have $30K of room and you contribute $33K, then you will get a pass for the first $2K but on the additional $1K, you will pay 1% per month on the cumulative excess amount (CEA) equalling $10 a month in this scenario.

Question 16

Any amount in excess of the allowable overcontribution limit is known as the

Answer 16

cumulative excess amount (CEA).

Question 17

Investments not qualified for RRSPs

Answer 17

• Shares and debt obligations of private corporations
• Real estate (although REITS are qualified)
• Commodity and financial futures contracts
• Listed personal property, such as are, jewelry, rare manuscripts, or stamps
• Uncovered call options and all put options.

Question 18

A plan holder who acquires or retains a non-qualified investment in an RRSP is subject to a tax penalty. In such cases, a one-time, special tax of ____% of the fair market value (FMV) of the non-qualified investment

Answer 18

50%

Question 19

Withholding tax rates on RRSPs & RRIFs:

Answer 19

Up to $5,000 = 10%
$5,001 to $15,000 = 20%
More than $15,000 = 30%

Question 20

Explain the Home Buyer’s Plan (HBP)

Answer 20

The HBP allows you and your spouse to each withdraw $35K tax-free from your RRSPs to purchase a home. To qualify, you must have not owned a home in the four calendar years preceding the year of withdrawal.
You must pay back your $35K to your RRSP within 15 years. You can pay installments or lump sums. Payments must begin no later than the second year following the withdrawal, or in the first 60 days of the 3rd year. There is no interest on the loan. If you fail to pay the required minimum payment, it will be added as income on your taxes.

Question 21

The minimum repayment for the HBP is calculated as follows:

Answer 21

RRSP HBP Balance Outstanding / Number of years remaining for repayment

$35,000 / 15 years = $2,333 per year

Question 22

Explain the Lifelong Learning Plan (LLP)

Answer 22

It is an RRSP lending program. Participants in this program must be enrolled in full-time training or postsecondary 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 in equal or greater installments over 10 years; otherwise, they will be included in the net income for tax purposes of the person who made the withdrawal. The first repayment is usually due 60 days after the fifth year following the first withdrawal.

Question 23

Clients holding RRSPs can choose from among three options when their RRSP matures:

Answer 23

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

Question 24

DPSPs cannot be set up for employees who are also specified shareholders or major shareholders, holding over ____% of any class of shares.

Answer 24

10%

Question 25

Regarding spousal RRSPs, withdrawals by the recipient could be taxed in the hands of the contributor if the withdrawal occurs within ______ years of the contribution to the spousal RRSP.

The time restriction includes the year the contribution was made and two full calendar years following the contribution.

Answer 25

Three years

If your spouse contributed in 2020, you have to wait until 2023 to withdraw funds, otherwise, they will be taxed in the hands of the contributor

Question 26

A disposition that occurs when a taxable property, such as marketable securities, is sold or transferred under certain circumstances.

Answer 26

taxable disposition