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CFP Canada > Retirement Planning > Flashcards

Retirement Planning Flashcards

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1
Q

How much does an employee and employer pay into CPP?

A

Currently 5.45% of pensionable earnings.
Self-employed pay a total 10.9%.
Contributions stop at 70.

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2
Q

What is yearly maximum pensionable earnings amount and yearly basic exemption?

A

Yearly maximum pensionable earnings - yearly basic exemption (which is frozen at $3500).
In 2021 it is $61,600 - $$3,500 = $58,100

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3
Q

When can a person receive CPP?

A

The standard age is 65, but a person can receive CPP at age 60 (benefit will be reduced by 0.6% per month); or at age 70 (benefit will be increased by 0.7% per month).

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4
Q

What are Canada Pension Plan benefits?

A

Disability benefits (available to contributors and their dependents)
Retirement benefits
Death benefit
Post-retirement benefits

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5
Q

What is CPP “pension credit”?

A

Earnings and contributions paid over the years into CPP. These are referred to as “pension credits”

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6
Q

How to split CPP pension credit?

*Note: last year of a couple being together doesn’t count for credit splitting

A

When a marriage or common-law partnership ends, the CPP credits built up by the couple, during the time they lived together, can be divided equally between them.

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7
Q

How to share CPP pension credit?

A

Married or common-law partners who are together, both at least 60 years of age, and receive CPP retirement pensions can share their pension benefits on the portion of the benefit earned during their time together.

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8
Q

Do Canada Pension Plan benefits affect the amount individuals receive from other programs?

A

Yes - for Income-tested benefits from programs such as War Veterans Allowances, Guaranteed Income Supplement, the Allowance and the Allowance for the survivor.

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9
Q

Who are exempted from participating in CPP?

A

Casual, significantly ceased working, financially dependent and migratory workers; those employed in agriculture, fishing and forestry; and those with annual income less than $250 from any single employer.

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10
Q

What is OAS?

A

Federally funded program that pays monthly pension benefits to 65-year-old residents, and supplementary benefits to eligible 60-year-old or older low-income seniors.

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11
Q

What benefits OAS provide?

A
  1. OAS pension
  2. Guaranteed Income Supplement
  3. Allowance (which includes the Allowance for the survivor)
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12
Q

How to calculate OAS payment?

A

Benefit payment is based on years of residency in Canada after age 18. The earliest age to receive OAS is 65, if delay payment will increase by 0.6% per month till age 70.

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13
Q

How to receive OAS?

A

Available to 65-year-old or older residents.

All OAS benefits must be applied for, and retroactive payments can be made for a maximum of 11 months.

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14
Q

What is the income threshold when OAS starts having clawback?

A

$79,845 in 2021. Clawback rate is 15 cents for every $1 above the threshold amount.

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15
Q

What if a person resides outside Canada, can he or she still receive OAS?

A

Yes if they were resident of Canada at time of their application, and have lived 20 years or longer in Canada after the turned 18.

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16
Q

What is Guaranteed Supplement Income?

A

GIS is a monthly benefit paid to residents of Canada who are eligible to receive an OAS pension (full or partial) and have little or no other income. GIS is not taxable.

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17
Q

How to know what would be the GIS amount someone can receive if they’re qualified?

A

The amount to which a person is entitled depends on his or her marital status and income. OAS, GIS and Allowance are not included in the income test.

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18
Q

What is Allowance and Allowance for survivor?

A

The Allowance and the Allowance for the survivor are benefits for 60 to 64-year-old low-income seniors. To qualify, an applicant must be between 60 and 64 and have resided in Canada for at least 10 years after turning 18.

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19
Q

How to know what would be the Allowance amount someone can receive if they’re qualified?

A

Allowance benefits are income-based. Benefit payments are not taxable.

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20
Q

If Allowance and GIS are not taxable, do we have to report them when filing tax?

A

Hell yea.

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21
Q

What is enhanced GIS Benefit?

A

The first $5,000 would be fully exempt and 50% of the next $10,000 would also be exempt, for a total of $10,000. This is excluded from income test.

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22
Q

What is employer pension plan?

A

Defined Benefit Pension Plan and Defined Contribution Pension Plan.
In a contributory plan, the employer deducts any contributions employees are required to pay from each pay cheque, and reports the total on a T4 tax slip each year. Employee contributions are tax-deductible.

23
Q

How to calculate defined benefit pension plan benefit amount?

A

Benefit = average earnings x benefit factor x number of years of pensionable service
Or Benefit = flat amount x number of years of pensionable service

24
Q

How to calculate age when employee can receive unreduced retirement benefit?

A

Age = (Age when employee joined plan + Qualifying Factor) / 2

25
Q

What are the deductibility of employer’s contribution and employee’s contribution to a DCPP?

A

The employer’s contributions are a tax deductible expense to employer, and not a taxable benefit to employee.
Employee contributions are tax-deductible during the year they are made.

26
Q

What is the commuted value of a pension plan?

A

The commuted value of your pension is the present value of your expected future pension plus related benefits.

27
Q

What is individual pension plan (IPP)?

A
  • IPPs offer retirement benefits for individuals over 40 years old who have income over $100,000 and have historically maximized their RRSPs and pension contributions.
  • IPP contribution limit is much higher than RRSP.
28
Q

What are the differences between IPP and RSP?

A
  • IPPs have significantly higher limits to contributions; creditor proofing; and restricted collapsibility options. — IPPs cannot be fully collapsed unless the plan holder is critically ill, severely disabled or has fallen on financial hardships.
29
Q

What is Deferred Profit Sharing Plan?

A

DPSPs are designed to provide retirement income for employees. Only the employer may make payments into the plan.

30
Q

How much an employer contribute to a DPSP?

A
  • If contributions are made “by reference to profits,” they are expressed as a percentage of profits for the year.
  • If contributions are made “out of profits”, the profits may be defined either as profits of the employer for the year or as accumulated undistributed profits of the year and prior year.
31
Q

Is there a limit to contribute to a DPSP?

A

There is no required minimum limit. Employers may contribute an amount no greater than 18% of the employees’ earnings for the current calendar year to a maximum of 1/2 of money purchase plan limit.

32
Q

How to withdraw from a DPSP?

A

DPSPs are not “locked-in” and, members may have the right to withdraw vested benefits.
Funds in DPSP can be received directly, with cost amount being added to the year’s taxable income. Taxpayer can then offset this by making the same amount of contribution to RRSP.
DPSP can also be transferred to RRSP directly, or another DPSP and RPP at fair value.

33
Q

What is Pension Adjustment?

A

An individual’s total pension credits for the year is known as a Pension Adjustment (DPSP contribution made by employer, contribution made to DBPP and DCPP).

34
Q

What is Pension Adjustment Reversal?

A

If an employee leaves the plan before retirement and not all the contributions have vested, the difference between the vested amount and previously reported Pension Adjustment is called Pension Adjustment Reversal. This amount will increase RRSP’s deduction limit.

35
Q

What is a RRSP?

A

An RRSP, or Registered Retirement Savings Plan, is a savings or investment account which allows you to defer paying tax on funds deposited to it.

36
Q

What is the three year attribution rule related to a Spousal RRSP?

A

If your spouse withdraws from their spousal RRSP within three calendar years of your last contribution to any spousal RRSP, the withdrawal is treated as income on your personal tax return.
For example, A contributed to B’s Spousal RSP in 2018; withdrawal in 2018, 2019 and 2020 this will be attributed to A as income.

37
Q

What happens if a Spousal RRSP is converted to a RRIF?

A

Within three years after the last contribution, any withdrawals above the minimum required withdrawal amount will be taxed as income on the contributor’s tax return.

38
Q

How to calculate RRSP deduction limit?

A

18% of “earned income” of last year, to an annual maximum
LESS “pension adjustment” last year
LESS any “past service pension adjustment” this year
PLUS any “past service pension adjustment reversals” this year
PLUS unused deduction room carried forward in last years

39
Q

How are RRSP and RRIF are taxed at death?

A

The general rule for an RRSP or RRIF is that the value of the RRSP or RRIF at the date of death is included in the income of the deceased for the tax return for the year of death.

40
Q

When can RRSP and RRIF tax upon death can be deferred?

A

If RRSP or RRIF beneficiary is:

  1. To spouse or common-law partner
  2. To a financially dependent child or grandchild under 18 years of age (either to their RRSP or to purchase a term annuity until they turn 18)
  3. To a financially dependent mentally or physically infirm child or grandchild of any age
41
Q

How to calculate pension credit?

A
  • For a Defined Benefit Pension Plan: PA = [(9 × benefit earned) - $600]
  • For a Defined Contribution Pension Plan: PA = Employer + Employee Contributions
42
Q

What is Past Service Pension Adjustment?

A

Pension benefits amount that may improve as a result of events related to past service (such as benefits being increased retroactively, or additional period of service credited to member).

43
Q

What is a retirement allowance?

A

An amount paid to employee upon retirement or loss of job.

44
Q

Can retirement allowance be transferred to RRSP or RPP?

A

Yes. A retiring allowance may be transferred in whole or in part to a RPP or RRSP, during the taxation year or during the 60-day period following the end of the year. This can only be done if the employee has enough RRSP contribution room.

45
Q

How to calculate RRIF minimum withdrawal under age 71?

A

1 / (90 - age)

46
Q

What is a LIF?

A

A LIF is essentially a RRIF with both a minimum and maximum annual withdrawal requirement.

47
Q

What is a LRIF?

A

Essentially a LRIF is a RRIF with a locked-in provision, which means that withdrawals are limited by pension withdrawal rules. It’s also subject to minimum and maximum limit.

48
Q

How long after breakup that a common law partner or legally married spouse can apply for CPP pension credit split?

A

4 years after the break up for common-law partners, there’s no deadline for legally married couples unless the separation agreement specifically said there would be no CPP credit split.

49
Q

What are two common defined benefit pension plan formulas?

A

Benefit = Average salary over career x years of service x a set percentage
Flat benefit = Flat amount per year x years of service

50
Q

What is the maximum pension earnings based on pension credit according to Pension Act?

A

The lesser between:

1) 2914.44 x years of service
2) 2% x years of service x average best paid 3 years

51
Q

When can a LIF annuitant withdraw from this plan more than the maximum amount?

A

1) Shortened life expectancy (2 years or less)
2) Financial hardship
3) 55 years or older and only has a small balance in this LIF
4) Annuitant been non-resident for 2 years or more

52
Q

What are the other deductions you can claim to reduce taxable income?

A
  1. Education deductions: moving expenses for education, student loans interest, adult basic education tuition assistance etc.
  2. Disability deduction for expenses that you paid to go to work, school or do research from grant received while being disabled.
  3. Pension deductions (PA, CPP etc.)
  4. Other eligible deductions like legal fees to claim wages, retiring allowance, spousal and child support.
53
Q

What is DCPP contribution limit?

A

The lower of:

  1. 18% of past year’s earned income up to annual limit
  2. 1/2 of MPP
54
Q

What is DBPP contribution limit?

A

1/9 MPP

CFP Canada (7 decks)

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