Module 10

Question 1

Describe the planning process:

Answer 1

1. Engagement
2. Establish objectives
3. Clarify Problems and opportunities
4. Identify Strategies
5. Implement
6. Monitor and document the plan

Question 2

Fully describe Canada Pension Plan (CPP)

Answer 2

Everyone from 18-70 working in Canada. Retirement pension.
2500 Death benefit/6* monthly. Disability Benefit: severe and prolonged.
Based on earnings, reduced by YBE of 3500$.
Starts at 65. At 60 6.48% less/year, contribution continue. Past 70 7% extra a year.

Question 3

What are the details of CPP?

Answer 3

Contributions optional past 65.
Cannot be assigned or split.
Can be started anytime between 60-70.

Question 4

How can you split pension Benefits? (CPP and Company)

Answer 4

Couples can share their CPP by assigning 1/2 of their qualifying benefits to each other for the year they live together. Lowers tax burden. Both parties need to be over 60.

Company - 50% split, joint elected, only one split, renew annually.

Question 5

What is Old Age security?

Answer 5

Provided to low income Canadians. Age 65, living in Canada currently. 40 years past 18 years of age.

Partial: At least for 10 years past 18. 1/40 of a reduction for every year short. Outside- 20 years past 18.

Max: 546.07/month. Clawback of 15% past 70954, no OAS past 114,640.

Question 6

What is Guaranteed Income Supplement?

Answer 6

Over 65, receiving OAS, resident, Low income.

Max: 740/Month. 50% clawback over base. Stops at 39696

Question 7

What is the Allowance?

Answer 7

Age 60-64, Spouse receives OAS and GIS, Low income, Resident.

Max 1037.03/month, clawback of 75% past base, no benefits past 30652.

Question 8

How is RRSP contribution room calculated?

Answer 8

Each year you earn contribution room for NEXT YEAR. 18% of earned income. Can be reduced by RPP or DPSP. Contributions to those are called a PA.

Ex. 60k*.18 in 2012, room for 2013.

Question 9

What is vesting?

Answer 9

After employee is under a RPP or DPSP for 2 year the contributions are vested, takes contributions with them. Locked in until 55 in a LIRA, then converted to LIF for income.

Question 10

What is a defined contribution plan? (Money Purchase)

Answer 10

Contribution is known (ex. 5% you, 5% employer.) Usually matching. Employer must make contribution. PA = combined amount.

Question 11

What is a defined benefit plan?

Answer 11

Usually benefit is known but employer doesn’t know end cost. Flat benefit: $$ earned per month. Ex 10 years at a company, 60$ a month. 60120= annual pension
PA= (60129)-600
Career Average: Earns % per year. Average income%*years
Best-Earning: Average best years. Same calculation.

PA CALC: (Benefit earned*9)-600. If reversed, credited that year.

Question 12

What are the limits of DPSP?

Answer 12

Employer only, max 1/2 of money purchase limit.
PA=Contribution
Vesting after two years, if earlier, then given back to company. After two years can be turned in RRSP, DPSP new or RPP.

Question 13

What does RRSPs consider earned income?

Answer 13

Net income from employment (less expenses), Self employment inc, Allocations from profit sharing, Disability benefits, Alimony, Royalties, grants (net), Rental income (net). CDN source business or employment while not Resident.

Question 14

What are some of the deductions from earned income for RRSP?

Answer 14

Refunds of salary, wages or grants. Current year net rental losses on real prop. Business losses. Professional Dues, Union Dues, Deductible Alimony.

Question 15

What does earned income NOT include for RRSPs?

Answer 15

Investment Income
Interest Income
Dividend Income
Taxable cap gains
Scholarships/Bursaries
Ltd. Partner Income
EI payments

Question 16

How is RRSPs room carried forward?

Answer 16

Indefinitely. If you don’t use it one year, you can carry it forward as much as you would like. Deductions can also be carried.

Question 17

What is the over-contribution limit and the penalty?

Answer 17

Limit is 2k, subject to 1% per month penalty tax.

500 over the limit * 1% = 5$*5 months of not knowing = 25$ penalty.

Question 18

What is a spousal RRSP?

Answer 18

If a couple has one person that has unused contribution room they can contribute to a spousal RRSP as long as the spouse is under 71. Contributor takes tax deduction, spouse owns RRSP.

If withdrawn in first three years, taxed to contributor as taxable income up to the sum of the contributions in those years.

Question 19

What happens for tax is the Spousal RRSP is converted to an RRIF?

Answer 19

The minimum withdrawal will not be attributed to the taxpayer.

Minimum RRIF withdrawal: $ in the fund on Dec 31/90-age

Question 20

How can a RRSP be used to purchase a home?

Answer 20

Qualifying home: Single family, semi-detached, town house, mobile home.
First time: anyone that hasn’t had a principal residence for 4 years. Can withdraw up to 25,000 from RRSP.

Question 21

How is the estate taxed if the taxpayer dies?

Answer 21

Fair market value of the retirement account is included in the taxpayers income for the year of his/her death.

Exceptions: rolled over to spouse/partner, rolled or to financially dependent children. (Under 18)

Question 22

What is an RRIF?

Answer 22

Registered Retirement Income Fund. Established by 71 at the latest. Minimum pay out each year except for year started. Minimums not subject to withholding tax or attribution under spousal plans.

Question 23

What is an LIF?

Answer 23

Life Income Fund. Started with money from Locked In Retirement Funds or RRSPs. Have minimum and maximum withdrawal amounts each year. Must be transferred to life annuity by 80.

Question 24

What is an LRIF?

Answer 24

Similar to LIF, certain provinces, does not have to be converted, does not have age of maturity, must rollover to spouse. If no spouse, changes to RRSP or RRIF for child.

Question 25

What is a life annuity?

Answer 25

Mandatory from a LIRA, LIF at 80.

RRSP owner can choose life annuity or Term certain.