My Study Notes

Question 1

How do you calculate the RRSP contribution limits for a member of an RPP or a DPSP?

Answer 1

(A) the individual’s unused RRSP deduction room carried forward from the previous year

plus

(B) the lesser of:

1. the RRSP dollar limit, and
2. 18% of earned income for the prior year

minus

(C) the pension adjustment fot the prior year and any past service pension adjustments reported by the individual’s employer for that particular year.

Question 2

How do you calculate the RRSP contribution limits for an individual who is:

• self-employed or
• not a member of an RPP or a DPSP?

Answer 2

(A) the individual’s unused RRSP deduction room carried forward from the previous year

plus

(B) the lesser of:

1. the RRSP dollar limit, and
2. 18% of earned income for the prior year

Question 3

What are the RRSP dollar limits for 2011 to 2014?

Answer 3

Year Limit Income@ 18%

2011 $22,450 $124,722

2012 $22,970 $127,611

2013 $23,820 $132,333

2014 indexed indexed

Question 4

Does a contribution made by an individual to a spousal RRSP affect the spouse’s personal RRSP contribution limit for the year?

Answer 4

No. An individual’s contributions to both his or her plan and a spousal RRSP are restricted in total to the individual’s own contribution limit. The spouse’s own personal RRSP contribution lmit is not affected.

Question 5

What conditions are necessary for two people to be considered to be common-law partners of each other?

Answer 5

• can be of either sex
• are cohabiting in a conjugal relationship, and either:
  
  • have been so cohabiting throughout the preceding 12 months, or
  • they are parents of the same child

Question 6

What is the advantage of a Spousal RRSP?

Answer 6

• used to achieve income splitting on retirement
• tax savings will be realized if the retirement income from the RRSP will be taxed at lower marginal tax rates in the spouse’s or partner’s hands.

Question 7

What are the consequences of an individual making a contribution to a Spousal RRSP that exceeds the individual’s deduction limit?

Answer 7

• The income on withdrawal will be attributed back to the individual and will be subject to tax in the contributor’s hands because the non-deductible contribution would not meet the exception to the attribution rules.

Question 8

What are the Spousal RRSP age limits?

Answer 8

1. Contributions can be made until the end of the year in which the spouse attains 71 years of age.
2. These deductible contributions can be made even if the contributor is over 71.

Question 9

Who owns the contributions made to a Spousal RRSP?

Answer 9

They are the property of the spouse.

Question 10

Which earnings are included in the definition of earnings for RRSP?

Answer 10

Earnings from:

• an office or employment, including taxable benefits, less all employment related deductions except for:
  
  • RPP contributions
  • RCA (retirement compensation arrangement) contributions
  • clergyman’s residence
• sole proprietor or partnership business
• property when derived from
  
  • rental of real property
  • royalties in respect of work or invention
• support payments (spouse & child - spousal payments are later deducted)
• supplementary unemployment benefit plan
• research grants
• support receipts
• disability pension received under CPP or QPP

Question 11

What amounts must be deducted from earned income for RRSP?

Answer 11

• Business losses
• rental property losses
• deductible support payments

Question 12

What amounts are excluded from earned income for RRSPs?

Answer 12

• superannuation or pension benefits (including CPP/QPP and OAS benefits)
• retiring allowances
• EI benefits
• death benefits
• amounts received from RRSP
• taxable benefits from a DPSP or a revoked plan
• investment income
• taxable capital gains
• scholarships and bursaries

Question 13

What are the RRSP attribution rules?

9,385

Answer 13

Attribution will apply on withdrawal of funds from a spousal RRSP by the the spouse if:

• the individual made a contribution in the current year or the preceding two years.

The amount withdrawn up to amount contributed by the individual in the three-year period will be included in the individual’s income. It will also be included in the spouse’s income. To prevent double-taxation, an offsetting deduction is allowed to the spouse or common-law partner.

Similar rules apply where the spouse receives an amount in excess of the minium amount from a RRIF and the RRIF received property from an RRSP to which the individual made a contribution in the three-year period.

Question 14

What are the rules regarding lump-sum transfers of RPP and DPSP amounts?

Answer 14

These lump-sum transfers can be made on a tax-free basis:only through a direct transfer for:

• RPP amounts to another RPP or to an RRSP
• DPSP amounts to an RPP, an RRSP, or to certain DPSPs; and
• amounts from an unmatured RRSP to an RPP, to another RRSP or to a RRIF.

If, instead of through direct transfer, the amount is received by the individual,he/she will include the amount in income but will not be allowed to contribute the funds to his/her RRSP to avoid income inclusion.

Unlimited transfer for:

• MPP to another MPP
• MPP to a DBP
• DBP to another DBP

Transfers limited to prescribed amounts:

• DBP to an MPP or RRSP

Question 15

What is the definition of a retiring allowance?

Answer 15

An amount received:

• upon or after retirement of an individual from an office or employment in recognition of his or her long service, or
• in respect of a loss of an office or employment of an individual

Excluded amounts are:

• superannuation or pension benefit
• received as a consequence of death of an employee
• employment benefits derived from certain specified conselling services

Question 16

What are the retiring allowance rollover rules?

Answer 16

• $2,000 for each year or part year of service prior to 1996; plus
• $1,500 for each year or part year of service prior to 1989 for which RPP and DPSP did not vest at time of retirement. (If only a part of the contributions are vest in any year prior to 1989, prorate the $1,500.)

Question 17

LIst the moving expenses that may be claimed.

Answer 17

• reasonable travelling costs in moving the family members to the new residence;
• transporting or storing household effects;
• the cost of meals and accommodation near the old residence or an acquired new residence for a period not exceeding 15 days;
• lease cancellation costs in respect of the old residence;
• selling costs of the old residence;
• the cost of legal services, transfer taxes or registration taxes, but not goods and services tax, in respect of the new residence but only where the old residence is being sold;
• mortgage interest, property taxes, insurance premiums and costs associated with maintaining heat and power, to a maximum of $5,000, payable in respect of a vacant “old residence” for a period during which reasonable efforts are being made to sell the “old residence”; and
• the cost of revising legal documents to reflect the taxpayer’s new address, replacing driving licences and automobile permits and obtaining utility connections and disconnections.

Note: Selling costs of the old residence may be deducted as moving costs or as selling costs for capital gains purposes.

Question 18

What is the maximum expense amount that may be claimed for maintaining a vacant residence while waiting for it to be sold?

Answer 18

$5,000

Question 19

What are the flat rates that may be used for moving expenses?

Answer 19

Instead of substantiating actual expenses by receipts, the taxpayer may use flat rates:

Hotel: maximum number of days for meals and hotels is 15

Meals:

• $17 per meal to max of $51 per day, per person

Vehicle expenses (determined by the province from which travel begins) 2011 cents per km.:

• Alberta 53.0
• B.C. 52.0
• MN 49.0
• NB 52.0
• NFLD 55.0
• NWT 61.5
• NS 53.0
• Nunavut 61.5
• ON 57.0
• PEI 52.0
• QC 59.0
• SK 47.5
• Yukon 63.5

Question 20

List the categories contained in the definition of “eligible relocation”.

Answer 20

1. taxpayers who move to a new business or employment location in Canada may deduct their moving expenses from their income in that new work location; or
2. students who move to attend a post-secondary instituion on a full-time basis either in or out of Canada may deduct their moving expenses from student income.

Question 21

What are the limitations imposed on an eligible relocation?

Answer 21

1. the taxpayer must move 40 kilometres closer to his or her new work location or post-secondary institution;
2. moving expenses, which exceed the income from the new work location in the year of move, can be deducted, but only in the following year, against income from that new work location; and
3. the taxpayer cannot be reimbursed by or be in receipt of an allowance from his or her employer for moving expenses he or she is claiming, unless the reimbursement or allowance is included in income. If it is not included in income, the reimbursement must be deducted from the total moving costs claimed.

Question 22

What are the income limitations for an eligible relocation?

Answer 22

The provision limits the aggregate ¹of moving expenses,

1. in the case of an employee or self-employed individual, to income from employment or business in the new location, and
2. in the case of a full-time student, to income from a research grant.

^{1) Aggregate means that an individual can income from both 1 and 2 combined.}

Question 23

What is the restriction on child care expenses?

Answer 23

The deduction is restricted to the individual with the lower income, except where that lower-income individual is:

• a student in full-time or part-time attendance at a designated educational institution or a secondary school in Canada;
• infirm and incapable of caring for children for at least two weeks;
• confined to prison for at least two weeks; or
• living apart from the higher-income taxpayer throughout a period of at least 90 days commencing in the year due to a marital or common-law relationship breakdown.

Question 24

What is the definition of income for child care purposes?

Answer 24

Income before:

• the child care expense deduction; and
• the deduction for the clawback of certain social assistance payments like OAS.

Definition of earned income:

• all salaries, wages, and other remuneration and taxable benefits received from office or employment;
• a business carried on by individual either alone, or as partner actively engaged in business;
• an amount included in income from supplementary unemployment benefit plans and net research grants; and
• disability pension received under CPP or QPP.

Question 25

Who claims the child care expenses when the incomes of both individuals are equal?

Answer 25

The individuals must agree to treat the income of one of them as higher.

Question 26

What is the formula for calculating the maximum amount of child care expenses that can be claimed by the higher-income parent?

Answer 26

The lessor of:

(a) the least of:

1. actual child care expenses paid in the year; and
2. sum of
   
   • $4,000 x no. of children between the ages of seven and 16, inclusive, plus
   • $7,000 x no. of children under age seven
   • $10,000 x no. of children with mental or physical impairment
3. 2/3 x earned income

and

(b) the sum of:

1. $250 x no. of children with mental or physical impairment;
2. $175 x no. of children under age seven;and
3. $100 x no. of other eligible children

times the number of weeks the lower-income spouse was

• a student,
• incapable of caring for the children because of mental or physical infirmity
• in prison, or
• living separate because of mariage or common-law partnership breakdown

Question 27

What is the formula for calculating the maximum amount of child care expenses that can be claimed by the lower-income parent?

Answer 27

The least of:

1. actual child care expenses paid in the year; and
2. sum of
   
   • $4,000 x no. of children between the ages of seven and 16, inclusive, plus
   • $7,000 x no. of children under age seven
   • $10,000 x no. of children with mental or physical impairment
3. 2/3 x earned income

minus the amount deducted by the higher-income spouse.

Question 28

What are the limitations on child care expenses for a single parent attending school or for two-parent families when both are attending school at the same time?

Answer 28

The lessor of:

(a) the least of:
* actual child care expenses paid in the year; and
(b) the sum of:

• $250 x no. of children with mental or physical impairment;
• $175 x no. of children under age seven;and
• $100 x no. of other eligible children

times the number of weeks of attendance in school.

The income limit is based on all amounts included in computing the individual’s Division B income for the year, not just earned income.

Question 29

What is the maximum tax-assisted benefit that may be provided to an individual under a defined benefit plan?

Answer 29

Maximum benefit:

2% of the individual’s average best three years of remuneration times the number of years of pensionable service (to a maximum of 35 years), with a dollar limit of $92,633 in 2012.

The maximum combined employer/employee contributions:

$92,633 / 35 x 9 = $23,820

Question 30

How was the 18% part of the RRSP contribution arrived at?

Answer 30

• It is assumed that $9 buys 1$ of pension income
• pension income is limited to 2% of income per year to an effective maximum of 35 years.
• To get 1$ of pension income in the future, you will need to contribute 18% (9 x 2%) of current income.