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 Eligibility and Contribution
Danielle started working at age 16. She earned $17,000 per year and she contributed $600 per year to her RRSP. She worked for 5 years before going to university.
At age 21, Danielle entered her four-year bachelor’s program. She earned a promotion at work which provided a salary of $21,000 per year, but she did not make any RRSP contributions because of the expense of school.
Danielle is 25 and graduated this year. She got another raise and is earning $35,000 per year, so she has decided to start contributing to her RRSPs again.
What amount of carry forward room does Danielle have left from her earnings in the five year period prior to university?
600 × 5 = $3,000 contributed to her RRSP from age 16 to 21 (5 years)
17,000 x 5 = $85,000 earned in those 5 years
85,000 × 18% = $15,300 contribution room in those 5 years
15,300 - 3,000 = $12,300
She has $12,300 carry forward room from the first 5 years
RRSP Eligibility and Contribution
Danielle started working at age 16. She earned $17,000 per year and she contributed $600 per year to her RRSP. She worked for 5 years before going to university.
At age 21, Danielle entered her four-year bachelor’s program. She earned a promotion at work which provided a salary of $21,000 per year, but she did not make any RRSP contributions because of the expense of school.
Danielle is 25 and graduated this year. She got another raise and is earning $35,000 per year, so she has decided to start contributing to her RRSPs again.
What amount of carry forward room does Danielle have left from her earnings in the four year period while she was in university?
She has $15,120 of carry forward room from the subsequent four years.
$21,000 × 18% = $3,780
3,780 x 4 = $15,120
Danielle has a carry forward room of $15,120 from the four years while she was in university.
RRSP Spousal Plan
Seema is in a higher tax bracket than her husband, Abhi, so she set up a spousal RRSP. She is currently earning $150,000 annually.
Assuming Seema has no RRSP carryover room, how much can she contribute to Abhi’s spousal RRSP?
Seema can contribute up to $27,000 to Abhi’s spousal RRSP.
$150,000 × 18% = $27,000
She can contribute up to $27,000 to her husband’s spousal RRSP.
REF. 4.7.1.2
RRSP Spousal Plan
Rachel currently earns $67,500. She has no previous RRSP carryover room. Rachel has contributed $200 to her own RRSP every month Since January 2018.
It is now February 2019, and Rachel would like to make a contribution to her husband Mark’s spousal RRSP before the cut-off deadline for the 2017 tax year.
How much can Rachel contribute?
$200 × 14 = $2,800
note: Rachel can make 14 contributions: one for every month in 2018 plus January and February 2019
$67,500 × 18% = $12,150
$12,150 - $2,800 = $9,350
Rachel can contribute up to $9,350 to her husband’s spousal RRSP.
RRSP Spousal Plan
Phil contributes $125 monthly to his RRSP. He puts the same amount into his wife’s spousal RRSP. Phil earns $89,000 and his wife, Elizabeth makes $24,500.
It’s December.
How much as Phil contributed in total to the RRSPs?
125 × 12 = $1,500
1,500 × 2 = $3,000
Phil puts $1,500 in each RRSP for a total of $3,000.
RRSP Spousal Plan
Phil contributes $125 monthly to his RRSP. He puts the same amount into his wife’s spousal RRSP. Phil earns $89,000 and his wife, Elizabeth makes $24,500.
It’s December.
How much more can Phil contribute to Elizabeth’s spousal RRSP for the year?
He can contribute up to $13,020 more to Elizabeth’s spousal RRSP this year.
Phil’s contribution to his wife’s spousal RRSP has an impact on his own maximum RRSP contribution
$89,000 × 18% = $16,020
$16,020 – $3,000 = $13,020
He can contribute up to $13,020 more to Elizabeth’s spousal RRSP this year.
RRSP Spousal Plan
Phil contributes $125 monthly to his RRSP. He puts the same amount into his wife’s spousal RRSP. Phil earns $89,000 and his wife, Elizabeth makes $24,500.
It’s December.
How much can Elizabeth contribute to her RRSP?
Elizabeth can contribute up to $4,410 to her own RRSP.
$24,500 × 18% = $4,410
Phil’s contribution to her spousal RRSP does not affect Elizabeth’s contribution limit to her own RRSP.
RRSP Spousal Plan
Talia is earning $97,700 and contributing $70 twice a month to her RRSP. She also has $1,200 of carry forward room. She wants to contribute the maximum amount to her wife’s spousal RRSP.
What is the maximum she can contribute?
She can contribute up to $17,106 to her wife’s spousal RRSP.
$97,700 × 18% = $17,586
$70 × 24 = $1,680
$17,586 - $1,680 = $15,906
$15,906 + $1,200 = $17,106
She can contribute $17,106 to her wife’s spousal RRSP.
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
Periodic Deposits
In January 2017, Adam purchased a segregated fund contract with a 75% 10-year maturity guarantee set up on the basis of monthly periodic deposits.
He contributed $150 every month for the first year only.
What amount will be guaranteed by the end of March 2020?
The answer is $0. The deposits Adam made are not guaranteed until after the maturity guarantee term of the 10th year of his contract or 10 years from the last contribution date.
Periodic Deposits
In January 2017, Adam purchased a segregated fund contract with a 75% 10-year maturity guarantee set up on the basis of monthly periodic deposits.
He contributed $150 every month for the first year only.
When will all of Adam’s contributions be guaranteed?
Adam’s deposits will be guaranteed at the end of the 10th year of his contract or 10 years from the last contribution date. That will be December of 2027.
Periodic Deposits
In January 2017, Adam purchased a segregated fund contract with a 75% 10-year maturity guarantee set up on the basis of monthly periodic deposits.
He contributed $150 every month for the first year only.
What is the total amount that will be guaranteed by the end of June 2027?
$675
Adam’s deposits from January 2017 to June 2017 (6 deposits of $150 each) will be guaranteed at a rate of 75% by the end of June 2027.
Periodic Deposits
In January 2017, Adam purchased a segregated fund contract with a 75% 10-year maturity guarantee set up on the basis of monthly periodic deposits.
He contributed $150 every month for the first year only.
What is the total amount that will be guaranteed by the end of October 2028?
$1,350
By October 2028 the entire amount Adam deposited ($1,800) will be guaranteed at a rate of 75%.
$150 × 12 = $1,800
$1,800 × 75% = $1,350
All 12 of the $150 deposits that Adam made will be guaranteed by October 2028 at a rate of 75%.
Periodic Deposits
Leigh purchased a segregated fund contract in January of 2009 with a 10-year 75% maturity guarantee. She initially invested $4,000 and then made contributions of $3,500 every December for the next 5 years.
It is December 2019. How much of Leigh’s investment is covered by the 75% guarantee?
The answer is $3,000.00. If it is December 2019, only Leigh’s initial deposit of $4,000 has reached its 10 year term.
$4,000 × 75% = $3,000
Leigh’s subsequent annual deposits starting in 2010 have not yet reached their 10 year term.
Periodic Deposits
Leigh purchased a segregated fund contract in January of 2009 with a 10-year 75% maturity guarantee. She initially invested $4,000 and then made contributions of $3,500 every December for the next 5 years.
Leigh’s goal is to purchase a home in 2022. If she withdraws everything she can
Leigh’s initial deposit of $4,000 and two of her subsequent annual deposits of $3,500 will be guaranteed at a rate of 75% by June 2022, for a total of $8,250.
$4,000 × 75% = $3,000
$3,500 × 75% = $2,625
3,000 + 2,625 + 2,625 = $8,250
Leigh’s initial deposit of $4,000 and two of her subsequent annual deposits of $3,500 will be guaranteed at a rate of 75% by June 2022, for a total of $8,250. This will be the minimum she can count on having available. It could be more if the value of the fund surpasses the 75% guaranteed rate.
Periodic Deposits
Leigh purchased a segregated fund contract in January of 2009 with a 10-year 75% maturity guarantee. She initially invested $4,000 and then made contributions of $3,500 every December for the next 5 years.
Leigh will need at least $16,000 as a deposit for her first home. Will she have
Leigh will need to wait until all of her deposits have passed their 10 year terms to ensure she has her target amount. If she waits until then, she will have a guaranteed amount of $16,125.
If Leigh waits until ALL of her deposits reach maturity, she is guaranteed to reach that $16,000 target.
3,500 × 5 = $17,500
17,500 + 4,000 = $21,500
21,500 × 75% = $16,125
GRRSPs
Charlotte just started her first job as an administrative assistant and will be earning $34,000. Both her employer and Charlotte are contributing 3% each to her GRRSP.
What is the total contribution to her GRRSP?
The total contribution to Charlotte’s GRRSP is $2,040.
($34,000 × 3%) × 2 = $2,040
GRRSPs
Charlotte just started her first job as an administrative assistant and will be earning $34,000. Both her employer and Charlotte are contributing 3% each to her GRRSP.
How much more can she contribute to her personal RRSP?
She can contribute up to $4,080 to her personal RRSP.
Charlotte’s RRSP deduction limit for this year is:
$34,000 × 18% = $6,120
As the contribution to Charlotte’s company GRRSP was $2,040 for the year, she can contribute up to $4,080 to her personal RRSP.
$6,120 - $2,040 = $4,080
Stacey just finished her first year managing an equestrian training center, earning $50,000. Last year, both her and her employer contributed $110 per paycheque (twice per month) to her GRRSP. She maximized her GRRSP and RRSP contributions in previous years and wants to do the same this year with an additional contribution.
How much more can Stacey contribute to her personal RRSP?
Stacey can contribute up to $3,720 to her personal RRSP.
Total contributions to the GRRSP:
($110 × 24) × 2 = $5,280
Fiona’s RRSP deduction limit for this year is:
$50,000 × 18% = $9,000
As the contribution to Fiona’s company GRRSP was $5,280 for the year, she can contribute up to $3,720 to her personal RRSP.
9,000 – 5,280 = $3,720
Eliot has been working as a photographer for the past five years. His starting salary was $40,000. He received a raise 2 years ago to $45,000 and is still at that wage.
Eliot is ready to begin saving for retirement. Starting this year, Eliot’s employer will match his contributions to a maximum of 5% of his earnings.
Eliot plans to contribute $150 per paycheque (twice per month).
How much can Eliot contribute to his personal RRSP this year?
Eliot can contribute up to $31,950 to his RRSP. This includes the carry forward room from his first five years of employment.
For the first 3 years he could have contributed up to:
$40,000 × 18% = $7,200
$7,200 × 3 = $21,600
For the past 2 years (since he received a raised), he could have contributed up to:
$45,000 × 18% = $8,100
$8,100 × 2 = $16,200
$21,600 + $16,200 = $37,800
$37,800 - $5,850 = $31,950
Eliot can contribute up to $31,950 to his RRSP.
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
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.
In year 10, Mina learns that in addition to her new salary of $42,000, her employer will also start matching whatever she deposits into her GRRSP, up to 5% of her salary. This is in addition to the regularly schedule 5% GRRSP contribution the employer already makes.
Understanding her employer is already contributing 5% of her salary into to her GRRSP, how much is being contributed to her GRRSP in total, in year 10, if Mina takes full advantage of this matching program?
There is a total contribution of $6,300 into her GRRSP in year 10.
For Mina to take maximum advantage of her employers 5% match GRRSP program, she should also contribute 5%.
Her employer already has a regularly scheduled 5% contribution. As a result, her employer is contributing what is equal to 10% of her salary = $42,000 x 10% = $4,200
Mina is contributing what is equal to 5% of her salary = $42,000 × 5% = $2,100
The total contribution is $6,300 into her GRRSP in year 10.
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.
In year 10, Mina learns that in addition to her new salary of $42,000, her employer will also start matching whatever she deposits into her GRRSP, up to 5% of her salary. This is in addition to the regularly schedule 5% GRRSP contribution the employer already makes.
It is possible, given her salary, that Mina can earn enough to cover the total RRSP contributions she would like to make?
