Chapter 10 Flashcards
146(1)
Definitions
“RRSP deduction limit”
is the amount determined by the formula
A + B +R - C
where
A is the taxpayer’s unused RRSP deduction room
B is the lesser of 18% of “earned income” and the RRSP dollar limit for the year
LESS
RPP contributions by the taxpayer or his employer from the previous year
R is the taxpayer’s pension adustment reversal (usually if an individual quits a job before a pension plan vests, contributions must be reversed)
C is the taxpayer’s past service pension adjustment (retroactive corrective contributions)
146(1) “earned income” includes
(a) total income from
(i) net employment income, without deductions for RPP contributions
(ii) net business income/loss
(iii) net rental income/loss or royalties for property for which the taxpayer was the inventor or author
(b) and spousal support
* ignore the rest of the provision for this class
146(1) RRSP “dollar limit”
(a) for years other than 1996 and 2003, the money purchase limit for the preceding year [see notes to 146(1) “RRSP deduction limit”]
RRSP Contribution Formula
RRSP Deduction Limit
LESS: undeducted contributions (past years and current year)
ADD: $2,000 non-penalty excess
= Max contribution without penalty
204.2(1.1)
Cumulative Excess Amount
204.2(1.1) the cumulative excess amount is the amount of undeducted contributions that exceeds the RRSP deduction limit plus $2,000, and is taxed at 1% per month
56(1)(h)
56(1)(h)
RRSP Withdrawal inclusion to Subdiv D income
146.01
Home Buyers Plan
146.01
allows a non-taxable withdrawal from an individual’s RRSP of up to $35,000 ($60,000?) to assist with purchasing a new home tax-free, as long as the amount is repaid within 15 years
146.02
Lifelong Learning Plan
146.02
allows a tax-free withdrawal to finance education or a spouse’s education; maximum iwthdrawal of $10,000 in any hear and up to $20,000 over a period of four years, so long as amounts are repaid within ten years
146(2)
Mandatory RRSP Withdrawal
146(2)
(b.4)
on December 31 of the yar in which a taxpayer turns 71, his RRSP will be collapsed and the money will come out as a lump sum
(b)
unless the individual chooses to convert their RRSP into a Registered Retirment Income Fund,, which allows the amounts to be withdrawn as an annuity
146(2)(b)
Registered Retirement Income Fund
146(2)(b)
RRSPs can be rolled into an RRIF (146.3) with no immediate tax consequenes; no contributions may be made after the rollover, and there is a minimum amount of withdrawal each year; withdrawn amounts are included in income under 56(1)(t), but amounts in the RRIF continue to grow tax free
Spousal RRSP
taxpayers in Canada have the option to make contributions into an RRSP for a spouse; however the contributing spouse’s deduction limit still applies to his combined RRSP contributions; the withdrawing spouse includes amounts taken out under 56(1)(h)
146(8.3)
provision that attributes any amounts contributed by a spouse in the current or previous to years back to the contributing spouse if withdrawn
146.2
Tax-Free Savings Account
146.2
annual contribution limits are in the notes
current year withdrawals get added back to the contribution room in the following year
if a taxpayer expects their tax rate to increase between investment and withdrawal, a TFSA is a better investment vehicle
146.1
Registered Education Savings Plan
146.1
income earned is tax exempt, and withdrawals are claimed by the student, so they are usually tax free (as the student probably has very little income)
146.6
Tax Free First Home Savings Account
146.6
deductible contributions can be withdrawn tax-free at a later date to assist an individual to purchase a first home; maximum contributions of $8,000 per year and $40,000 lifetime
