MATH HUB 3 Flashcards
Taxation of Benefits
Tina earned $87,600 of net income and the OAS pension threshold is $74,788.
What amount will Tina have to repay on her income tax return?
Tina will have to repay $1,921.80 on her income tax return.
($87,600 - $74,788) × 15% = $1,921.80
Tina will have to repay $1,921.80 on her tax return.
REF: 4.4.1.4
Taxation of Benefits
This year Rene will earn $74,800 of net income and the OAS pension threshold is $75,910.
Calculate Rene’s repayment amount.
A negative number indicates that the government actually owes Rene $166.50.
($74,800 - $75,910) × 15% = -$166.50
Rene will receive $166.50 from the government.
Taxation of Benefits
Zoe is self-employed and continues to work part-time. Her self-employment income is $40,700. She also receives $35,800 in OAS pension income and another $15,000 in investment income.
The OAS pension threshold is $74,788.
Based on Zoe’s income this year, will she have an OAS repayment?
Zoe will have an OAS repayment of $2,506.80.
(($40,700 + $35,800 + $15,000) - $74,788) × 15% = $2,506.80
The answer is yes, Zoe will have an OAS repayment of $2,506.80.
Taxation of Benefits
Meena’s retirement income includes a RRIF income of $43,400; a pension income of $15,600; an OAS pension income of $18,000 and an interest income of $21,000. The OAS pension threshold is $74,788.
Based on Meena’s income this year, will she have an OAS repayment?
Meena will have an OAS repayment of $3,481.80.
(($43,400 + $15,600 + $18,000 $21,000) - $74,788) × 15% = $3,481.80
The answer is yes, Meena will have an OAS repayment of $3,481.80.
CPP Benefits
At 65, Yan continues to work and receives an income. He has deferred receiving his CPP pension of $890 monthly for one year.
What will Yan receive as his CPP pension income next year?
Yan will receive $964.76 next year as his CPP pension income.
$890 + ($890 × 8.4%) = $964.76
Yan will receive $964.76 next year as his CPP pension income.
CPP Benefits
Hari runs a business and delayed receiving his CPP pension income for the last 5 years. He was supposed to receive $560.
What will Hari receive this year?
Hari will receive $795.20 this year.
$560 + ($560 × 8.4% × 5 years) = $795.20
Hari will receive $795.20 this year.
CPP Benefits
Marsha decides to retire early and wants to start receiving her CPP as early as possible. Her scheduled payment would have been $1,050.
What is the maximum CPP that Marsha can receive?
Marsha can receive a maximum of $672 in CPP.
The earliest Marsha can retire is 60 years old which is 5 years earlier than the standard age of 65 where she would receive $1,050.
7.2% × 5 years = 36%
$1,050 – ($1,050 × 36%) = $672
Marsha can receive a maximum of $672 in CPP.
CPP Benefits
Adu is eligible for the maximum benefit permitted under the Canadian Pension Plan (CPP) definitions. He elects to receive his CPP at the exact age of 62 and receives $552.94 monthly.
What would Adu have received had he elected to receive his CPP benefit at age 65?
He would have received $705.28 if he had not started his CPP early.
The penalty for the early pension is 0.6% or 7.2% per year. Since Adu elected to receive his CPP 36 months, or three years before age 65, he would receive 21.6% less than the maximum monthly benefit for 65-year old’s (3 x 7.2% = 21.6%).
78.4% of the total CPP pension is what Adu is currently receiving which is calculated as:
552.94 = (1x – 0.216x)
552.94 = 0.784x
Equalize each side of the formula to solve x. This is done by dividing each side by the variable attached to x.
552.94 ÷ 0.784 = 0.784x ÷ 0.0784
705.28 = x
Check the math:
$705.28 – ($705.28 x 21.6%)
$705.28 – $152.34 = $552.94
Commentary
- The 78.4 % came from 100% minus 21.6%
- 21.6% came from the yearly early pension penalty (7.2%) x 3
- (Pension starts at 65, but he’s 62 and wants to start the benefits (65-62 = 3))
- Take your time make notes, revise and go over them
CPP Benefits
Laura cannot decide if she should take her CPP as early as possible or as late as possible. At 65, she would receive $1,200 in CPP.
- If she decides to retire early at 60 years old, what will she receive?
- If she decides to retire later at 70 years old, what will she receive?
If she decides to retire early at 60 years old Laura would receive:
$1,200 – ($1,200 × 7.2% x 5 ) = $768
If she decides to retire later at 70 years old Laura would receive:
$1,200 + ($1,200 × 8.4% × 5) = $1,704
There is a difference of: 1,704 - 768 = $936
RRSP Eligibility and Contribution
Monica just started her first job as an administrative assistant and will be earning $34,000.
How much can she contribute to her RRSP?
Monica can contribute up to $6,120 to her RRSP.
$34,000 × 18% = $6,120
She can contribute up to $6,120 to her RRSP.
REF: 4.7.1.1
RRSP Eligibility and Contribution
Fiona just finished her first year as a manager at Staples earning $50,000 per year. Up until now, she has always contributed the maximum. Last year she contributed $225 twice per month to her RRSP.
It is already January 15. Based on the date, can Fiona still top up her RRSP contribution?
YES
The CRA establishes a date, usually 60 days after December 31, as the cut-off date for contributions for the previous year.
RRSP Eligibility and Contribution
Fiona just finished her first year as a manager at Staples earning $50,000 per year. Up until now, she has always contributed the maximum. Last year she contributed $225 twice per month to her RRSP.
It is now January 15. How much more can Fiona contribute?
Fiona can contribute up to $3,600 more to her RRSP.
$225 × 24 = $5,400 contributed to her RRSP last year. There is no contribution room from previous years.
50,000 × 18% = $9,000
She could have contributed up to $9,000 last year.
$9,000 - $5,400 = $3,600
She can contribute up to $3,600 more to her RRSP, if she does so before the CRA cut-off.
RRSP Eligibility and Contribution
Liam has been working for the past 5 years as a programmer. If he starts saving for retirement now, he will have enough money saved to retire early.
Five years ago he started with a salary of $40,000. He received a raise 2 years ago to $45,000, which is his current salary.
For the first 3 years, Liam could have contributed up to…
For the first 3 years he could have contributed up to $21,600.
RRSP Eligibility and Contribution
Liam has been working for the past 5 years as a programmer. If he starts saving for retirement now, he will have enough money saved to retire early.
Five years ago he started with a salary of $40,000. He received a raise 2 years ago to $45,000, which is his current salary.
For the past 2 years (since he received a raise), Liam could have contributed up to…
For the past 2 years he could have contributed up to $16,200.
$45,000 × 18% = $8,100
$8,100 × 2 = $16,200
For the past 2 years Liam could have contributed up to $16,200
RRSP Eligibility and Contribution
Ronnie is confused about his RRSP carry forward room. He has been working for 2 years earning $36,700 and he has been making monthly RRSP contributions of $120.
How much carry forward room does Ronnie have?
Ronnie has $10,332 of carry forward room.
$120 × 12 = $1,440 contributed per year
1,440 × 2 = $2,880 total contribution
$36,700 × 18% = $6,606 contribution limit per year
$6,606 × 2 = $13,212 total contribution limit
$13,212 – $2,880 = $10,332
Ronnie has $10,332 of carry forward room.
RRSP Spousal Plan
As Sean’s income increased over the past 5 years, he has increased his contributions to his RRSPs. Sean just got married and wants to start contributing to a spousal RRSP.
He is now in his sixth year of employment and earns $50,000. He wants to continue his $650 monthly contributions to his RRSP and start contributing monthly to his wife’s spousal RRSP.
What is the maximum Sean can contribute to his wife’s spousal RRSP in his sixth year of employment?
In his sixth year, Sean’s will be able to contribute $2,415.90 to his wife’s spousal RRSP.
Year 1:
$36,000 × 18% = $6,480
$530 × 12 = $6,360 annual RRSP contribution
$6,480 - $6,360 = $120 carry forward room
Year 2:
$36,720 × 18% = $6,609.60
$540 × 12 = $6,480 annual RRSP contribution
$6,609.60 - $6,480 = $129.60 carry forward room
Year 3:
$37,455 × 18% = $6,741.90
$560 × 12 = $6,720
$6,741.90 - $6,720 = $21.90
Year 4:
$41,200 × 18% = $7,416
$600 × 12 = $7,200
$7,416 - $7,200 = $216
Year 5:
$47,380 × 18% = $8,528.40
$650 × 12 = $7,800
$8,528.40 - $7,800 = $728.40
Total carry forward room amount:
$120 + $129.60 + $21.90 + $216 + $728.40 = $1,215.90
Year 6:
$50,000 × 18% = $9,000
$650 × 12 = $7,800
$9,000 - $7,800 = $1,200
$1,200 + $1,215.90 = $2,415.90
Mina worked for five years before going to university. She earned $15,500 per year and contributed $25 per month to her RRSP. When Mina entered four years of university her employer gave her a raise. She stopped contributing, but she was still working at a wage of $19,000 per year. Mina just graduated and is now a professional earning $42,000 per year. She remains with the same employer.
Her benefits include a GRRSP. Her employer always contributes what is equal to 5% of her earnings into her GRRSP. It is deposited into her GRRSP on a regular monthly schedule.
What was Mina’s total cumulative carry forward room at the end of year 9?
At the end of year 9, her total carry forward room is $18,455
For the 5 years prior to university, Mina made $15,500 per year and contributed $25 per month, or $300 annually, to her individual RRSP.
Her employer contributed to her group RRSP (GRRSP) the equal of 5% of her salary annually, or $775. Her cumulative carry forward room at the end of that 5 years was $8,575.
When she goes to university for four years, she stops contributing to her individual RRSP, but her employer would still be contributing what is equal to 5% of her current $19,000 salary or $950. At the end of university, her cumulative carry forward room is $18,455
