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CFP Canada > RRSPs > Flashcards

RRSPs Flashcards

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1
Q

What are the non qualified investments that cannot be included in an RRSP?

A

Real estate
Commodity futures
Listed personal property like art, gems
Shares of a private corporation where annuitant or immediate family owns 10% or more of any class of shares

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2
Q

What are the tax consequences on non qualified investments that remain in an RRSP?

A

1) The FMV of the investment at time of purchase is included as income. When it’s disposed, the difference between the lesser of the proceeds and FMV may be deducted.
2) RRSP trust is subject to a 1% penalty on the FMV at time of purchase for each month it remains in the RRSP. It is calculated on a month end basis but payable annually.
3) RRSP trust is subject to income tax on investment income earned from the non qualified investment

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3
Q

What are the options or plans that an unmatured RRSP can directly transfer to with no immediate tax consequences?

A

RPP
RRSP
RRIF
Annuity

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4
Q

In case of a relationship breakdown, list the types of plans that assets from an unmatured RRSP may directly transfer to?

A

RRSP

RRIF

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5
Q

What are the conditions that must be met in order for a direct transfer between an unmatured RRSP and other qualified plans to occur in the event of a relationship breakdown?

A

1) Payment must made be under a decree, court order, judgment of a court or under a written agreement relating to division of property between two current or former spouses/common law partners in settlement of rights due to a relationship breakdown.
2) spouse or partner must are living separate and apart at time of transfer due to relationship breakdown.

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6
Q

What is the condition to transfer assets between two RRSPs?

A

Funds being transferred into the RRSP has to be with an annuitant who is 71 or younger at the end of the year in which the ranger occurs

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7
Q

What are the types of plans that may transfer directly to an unmatured RRSP?

A 
RPP lump sum*
DPSP lump sum*
RRSP commutation payment 
Property from an unmatured RRSP
Excess amount from a RRIF

*in specific circumstances only such as death of a pensioner or a court order due to a relationship breakdown.

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8
Q

With whom does the tax liability lie with if the assets of an umatured RRSP pass to someone other than a spouse/common law partner, qualified child or grandchild?

A

The deceased’s estate.

In this case, the decreased includes the RRSP assets as income in year of death. So tax consequence lies with the annuitant not the beneficiary.

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9
Q

If the assets of an unmatured RRSP transfer to a spouse/common law partner or qualified dependent child or grandchild, what are the tax consequences?

A

The spouse/common law partner or qualified child or grandchild will assume responsibility for the tax consequences. He/she will include the income in the year or receipt.

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10
Q

What is the definition of a refund of premiums in terms of an RRSP?

A

Any amounts paid out of an RRSP to a qualified beneficiary.

This includes a spouse or common law partner or a financially dependent child or grandchild.

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11
Q

Who are qualified beneficiaries of an RRSP?

A
  1. Spouse or common law partner
  2. Financially dependent child or grandchild
  3. Financially dependent child or grandchild who is mentally or physically disabled
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12
Q

What are the qualified plans that a refund of premium for a qualified beneficiary of a deceased’s annuitant’s RRSP can be transferred to?

A

RRSP
RRIF
Annuity

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13
Q

If a spouse/partner receives the RRSP funds from a deceased annuitant’s RRSP personally, what are the tax consequences?

A

If the spouse transfers the funds in the year they were received or within 60 days after the year in which they were received, there are no tax consequences (even if it’s an indirect transfer)

If the spouse does not, then it must be included as income for tax purposes in the year received.

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14
Q

What are the options for a financially dependent child or grandchild to receive RRSP funds from a deceased annuitant?

A

Child may transfer it to a term certain to age 18 annuity.

Child can directly transfer or indirectly transfer.

An indirect transfer means child receives funds and then makes a subsequent contribution to the annuity in the year of receipt or 60 days to obtain the tax deferral

If not, funds are taxed to the child in the year of receipt.

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15
Q

What are the qualified plans that a financially dependent child or grandchild who is disabled can transfer RRSP assets from a deceased annuitant?

A

RDSP
RRSP
RRIF
Qualifying annuity

Transfer must be done in the year of receipt or 60 days after the year or else, it is taxable to the child.

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16
Q

Whose contribution room is affected when contributions are made to a spousal RRSP?

A

The contributing spouse.

The contributing spouse’s RRSP room decreases

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17
Q

Who gets the deduction if a spouse contributes to a spousal RRSP?

A

The contributing spouse

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18
Q

What is the benefit of contributing to a spousal RRSP?

A

To balance retirement income between spouses and have the annuitant spouse withdraw income from the RRSP at a lower tax rate compared to the contributing spouse

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19
Q

Does the contributing spouse control the trades or have power of attorney on the spousal RRSP?

A

No. Only the plan owner or annuitant (non contributing spouse) has power over the account.

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20
Q

What is the three year rule or the current plus two year rule?

A

It is a rule to discourage people from using spousal RRSPs for short term income splitting.

Basically, if an annuitant (non contributing spouse) withdraws from a spousal RRSP and the annuitant’s spouse/partner had contributed to the spousal RRSP in the current year or the previous 2 years, then the income is attributed back to the contributing spouse and he or she must include it in their income.

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21
Q

What is the income that is attributed back to the contributing spouse in the current plus 2 year rule for spousal RRSPs?

A

The lesser of:

  • the amount of the withdrawal from the spousal RRSP
  • the amount of any spousal RRSP contribution made in the current or 2 immediately preceding years
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22
Q

If an annuitant makes a withdrawal from a spousal RRSP that their spouse/partner has not contributed to in the current or prior 2 years, what are the tax consequences?

A

The annuitant must include the income withdrawn as income.

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23
Q

When do attribution not apply for spousal RRSPs?

A
  1. The year contributing spouse died
  2. The year the RRSP is terminated due to the death of owner/annuitant
  3. If contributing spouse or annuitant is non resident at time of withdrawal
  4. After a divorce

5 when spouse or partners are living separate and apart due to relationship breakdown

  1. Amount is a commutation payment transferred directly for a spouse to another RRSP, RRIF or eligible annuity that cannot be commuted for at least 3 years
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24
Q

Can RRSP contributions be made to a spousal RRSP by a deceased taxpayer’s legal rep?

A

Yes. It can only be made to a spousal RRSP in the year of death or 60 days after year of death.

It cannot be made into a regular RRSP.

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25
Q

What is a retiring allowance?

A

It is a payment:

  1. On it after retirement from an office of employment in recognition of long service
  2. In respect of a loss of an office or employment of a taxpayer whether or not received as, on account of or in lieu of payment of damages pursuant to a court order
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26
Q

What is the formula to calculate the maximum retiring allowance that can be rolled over to an RRSP or RPP?

A
  1. $2000 X # of years employee was employed before 1996
  2. $1500 X # of years employment before 1989 during which employee was not a vested employer of a pension plan or DPSP
    - for part 1, any amount arising from employment after 1995 is not eligible for the rollover option & any year or part year is included as a whole year
    - for part 2, fractional years can be used in calculation and vesting has to be observed
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27
Q

Can a retiring allowance be transferred to a spousal RRSP?

A

No

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28
Q

Where can a retiring allowance be transferred to?

A

Individual RRSP & RPP

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29
Q

Does a rollover of a retiring allowance affect the taxpayer’s normal RRSP limits and contributions?

A

No

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30
Q

Which of the following accounts allow assets to be transferred to a spousal RRSP?

LIRA
Retiring allowance
Regular RRSP
NREG

A

NREG

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31
Q

List the scenarios in which a LIRA (or locked in RRSP) can be unlocked?

A
  1. Shortened life expectancy due to disability
  2. Value of plan assets is quite low
  3. Annuitant is no longer a Canadian resident
  4. Financial hardship
  5. Spousal or child maintenance enforcement orders
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32
Q

Before an annuitant turns 71, what are the plans a LIRA can be transferred to?

A 
Another LIRA
LIF
LRIF
Life annuity
RPP
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33
Q

What are the options available to transfer assets of a matured LIRA to?

A

LIF
Life annuity
LRIF (ON, NFL and AB)
PRIF (SK)

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34
Q

What is the criteria for the home buyer’s plan?

A

The person must not have owned a home occupied as a principal residence 4 years before the year of the RRSP HBP withdrawal and ending 31 days before the withdrawal.

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35
Q

What is excluded from being a qualifying home for the home buyer’s plan under RRSP?

A

A housing co-operative where a share in the co-operative provides the annuitant with a right to tenancy but not an equity interest

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36
Q

If an annuitant purchases a home for a disabled person using the HBP withdrawal from an RRSP, must the person be a first time home buyer?

A

No.

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37
Q

If a person purchased a home but the closing date is on July 31st 2016, when is the last date to be considered to have an eligible HBP withdrawal?

A

Any time before 30 days after the closing date - so no later than August 30, 2016

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38
Q

What is the exception for all HBP withdrawals to be received in the same calendar year?

A

January of the year after the year of the withdrawal.

After January of the withdrawal year, it doesn’t qualify.

39
Q

If Betty makes an HBP withdrawal from her RRSP on November 1, 2015 all successive withdrawals must be made by what date?

A

January 31, 2016 after that, all withdrawals are taxable as income

40
Q

What is the maximum withdrawal from an RRSP under the HBP?

A

$35,000

41
Q

When is the deadline in which a taxpayer must buy or build a qualifying home under the HBP withdrawal?

A

October 1st of the year after the year of the withdrawal.

42
Q

When is the taxpayer who builds a qualifying home considered to have built it?

A

The day it becomes habitable

43
Q

If the taxpayer does not meet the deadline of buying or gilding a home before October 1 of the year after the HBP withdrawal year, what options does the taxpayer have?

A
  1. Can cancel his/her participation in HBP

2. Buy or build a replacement property (a different home)

44
Q

What is the condition in which a taxpayer would not have his/her deduction limit affected by participating in the home buyer’s plan?

A

If he/she does not contribute within 90 days before the home buyer’s plan withdrawal to either an individual RRSP or a spousal RRSP.

45
Q

How long does a taxpayer have to make the repayments to their RRSP for the HBP?

A

15 years

46
Q

When does the taxpayer start making repayments to the RRSP for the HBP?

A

2 years after the HBP withdrawal

47
Q

What is the minimum repayment schedule for the HBP plan?

A

1/15th of the original HBP balance

48
Q

What happens if a taxpayer does not make the HBP repayment?

A

It is included as income in the year the payment was due

49
Q

Can the taxpayer make a repayment to any RRSP other than the one in which the HBP amount was withdrawn?

A

Yes

50
Q

Can a HBP repayment be claimed as a deduction for an RRSP contribution?

A

No

51
Q

Which of the following can be designated as a HBP repayment?

a) a direct transfer for funds from another registered plan to an RRSP
b) a retiring allowance that’s was transferred and which the taxpayer will be deducting on their return that year
c) a contribution to a spousal RRSP

A

C

52
Q

What are the situations that can lead to a shortened repayment period for the HBP participant?

A

a) HBP participant dies
b) HBP participant becomes a non resident
c) HBP participant’s options in the year of turning 71

53
Q

If a spousal election is made for the HBP repayment in the event a participant dies, so that the withdrawal is not included as income what happens?

A

If the surviving spouse is also a HBP participant then the balance of the deceased’s HBP is added to the surviving spouse’s HBP to the repaid over the surviving spouse’s HBP repayment period

If the surviving spouse is not a HBP participant, then the deceased’s HBP balance has to be repaid over the deceased’s repayment period. Spouse also cannot make a withdrawal from any RRSP until the full balance is paid.

54
Q

If HBP participant stops being a Canadian resident, then when must the participant repay the HBP balance?

A

Earlier of:

  • date he files his income return for the year
  • 60 days after ceasing to be a Canadian resident
55
Q

What are the options for a HBP participant turning age 71 if he/she cannot contribute after age 71 to an RRSP?

A
  • the individual has to repay the entire balance

- the individual has to include the amount that would have been due each year in their income

56
Q

In 2008, Mary withdrew $18000 from her RRSPs to participate in the HBP. Her repayment period began in 2010. On 2016, she reaches age 71.

Mary’s HBP balance is $10,800 at the beginning of 2016. She chooses to make a $5000 contribution and designates as the repayment for her HBP. What is the amount she will have to include in her income every year?

A

$10,800 - $5000 = $5800

Mary has until 2024 to pay the entire balance and she’s in 2016.

2024 - 2016 = 8

5800/8 = $725/year has to be included as income from 2017 to 2024

57
Q

What are the conditions in which a HBP can cancel their participation?

A

If the taxpayer did not buy or build a qualifying home or replacement property

OR

The taxpayer became a non resident before buying/building the qualifying home or replacement property.

Above also applies to a taxpayer who withdrew HBP for a related disabled person.

58
Q

What is the annual LLP limit and the total LLP limit?

A

Annual LLP limit - $10,000

Total LLP limit - $20,000

59
Q

Who can be an LLP student?

A

An annuitant or an annuitant’s spouse.

No children can be an LLP student.

60
Q

Who can be an LLP Participant?

A

One whose RRSP funds are not locked in, is under age 71 and is a Canadian resident when the funds are received

61
Q

Do LLP funds have to be used specifically for education costs?

A

No

62
Q

What is a qualifying program under the LLP?

A

One that

  • last 3 consecutive months or more and
  • requires 10hrs/week on courses or work in the program (not study hours)
63
Q

Can someone start two LLPs?

A

No. The LLP balance has to be reduced to zero before a new LLP can be started

64
Q

When can an LLP participant be able to deduct the entire contribution from their income for the year when contributions are made to an existing RRSP within 90 days before withdrawal?

A

If the RRSP contribution amount = the RRSP contribution amount

65
Q

What if the FMV of the RRSP right after the withdrawal is < RRSP contribution amount where contributions are made within the 90 day period?

A

Then the LLP participant can deduct the portion of the contribution = FMV of the RRSP right after LLP withdrawal.

66
Q

When can a person deduct the entire contribution if the contributed to their RRSP 90 days before a HBP withdrawal?

A

When the HBP withdrawal FMV of the RRSP 90 days before withdrawal then the deduction is denied

67
Q

How long does a contribution have to be in a newly RRSP before it is deductible from income (under LLP)?

A

90 days

68
Q

What is the maximum repayment period for LLP and HBP?

A

LLP - 10 years

HBP - 15 years

69
Q

To qualify for the 10 year repayment period, when must the LLP student complete the program of study Pt continue to be enrolled in the educational program?

A

End of March after year of the withdrawal

70
Q

When is the repayment for an LLP withdrawal to required to begin?

A

Earlier of:

  1. 5th year after first LLP withdrawal
  2. 1st year after the last year in which the LLP student met the qualifying conditions
71
Q

What is the minimum repayment for LLP?

A

Total LLP balance owing at time repayments must start/10 years

72
Q

When can an RRSP contribution not be designated as an LLP repayment?

A

When the contribution is:

  1. A result of a direct transfer from another registered plan
  2. Acquired through a transfer such as a retiring allowance and which the taxpayer will be deducting on return for that year
  3. Made to spouse or common law partner’s RRSP or that he/she made to your RRSP
73
Q

In which situations can an LLP participant cancel their participation?

A
  1. The LLP student was not enrolled or did not subsequently enrol when the withdrawal was made.
  2. LLP student leaves the program before April after the year of the withdrawal and 75% or more of the student’s tuition is refundable.
  3. LLP participant becomes a non resident before the end of the year in which an LLP withdrawal was made
74
Q

What is a deferred profit sharing plan (DPSP)?

A

An employer sponsored plan registered with the CRA in which the employer shares some of the profits of the business with employees.

75
Q

Is a DPSP a form of pension?

A

No

76
Q

Can an employee make contribution to a DPSP?

A

No

77
Q

What are the two methods of contributing to a DPSP?

A
  1. Employer contributions into the plan

2. Lump sum transfer from another DPSP.

78
Q

What is the maximum deductible limit for a DPSP?

A

It is basically the maximum contribution limit that integrate/ with the income level of the employee.

It is lesser of:

  1. 18% of the employee’s annual compensation
  2. 1/2 of the money purchase limit for the year
79
Q

If an employer offers both RPP and DPSP, what is the annual combined pension adjustment limit for each employee that they shouldn’t exceed?

A

Lesser of:

  1. 18% of the employee’s annual compensation
  2. 1/2 of the money purchase limit
80
Q

When do participating employees become vested irrevocably?

A

After they have participated in the plan for 2 consecutive years (24 months).

81
Q

When are all amounts vested in the DPSP are payable?

A

No later than 90 days after the earliest of:

  1. Death of the employee
  2. Day on which employee terminates employment with the contributing employer
  3. Day on which employee turns 71
  4. Termination of the plan
82
Q

What are the ways in which a DPSP plan member can withdraw a vested interest?

A
  1. As a direct payment of cash or cash instalments (taxable)
  2. As a direct payment of the property from the trust such as shares of the employer’s corporation
  3. As a direct transfer to another registered plan such as RPP, RRSP, or DPSP where plan member is an annuitant
  4. Through the purchase of an annuity by the DPSP trustee for the plan member
83
Q

What are the conditions to rollover the DPSP to another DPSP to do so tax free?

A
  1. Must be transferred directly

2. New plan must have at least 5 beneficiaries

84
Q

What are the conditions for a plan member to purchase an annuity with DPSP funds?

A

It can be a single or joint and last survivor annuity but the annuity must:

  1. Begin on or before the member turns 71
  2. Guarantee period must not exceed 15 years

Can have an inflation adjustment with the annuity. And this option results in a tax deferral status with tax only paid as payments are received.

85
Q

What are the options if a DPSP beneficiary wants to receive the benefit in form of corporate shares in which it is non arm’s length?

A
  1. Beneficiary can transfer shares directly to an RPP or RRSP where the FMV becomes the transfer value.
  2. Can elect to receive shares directly and include the cost of shares in income. Must be a Canadian resident. When shares are disposed, they pay capital gains tax.
    - if beneficiary selects option 2, they can contribute an amount equal to the ACB of the shares to their RRSP or RPP to offset any tax consequences. So beneficiary only pays taxes when they dispose the shares, die, or stop being a Canadian resident
86
Q

If a DPSP plan member dies, what options are available to transfer the assets to surviving spouse on a tax deferred basis?

A
  1. RPP - where surviving spouse or partner is a plan member
  2. RRSP - where spouse or partner is an annuitant and under age 71
  3. DPSP - where there are at least 5 beneficiaries and the spouse or partner is a participating member.
87
Q

What are the types of earned income that can affect a taxpayer’s contributions to RRSP?

A

Employment and self employment income
Royalties
Net rental income on real property
Income from a business as a proprietor or active partner
Receipt of taxable spousal and child support payments
Research grants
CPP disability benefits
Canadian business source or employment income while being a non resident
Unemployment benefits excluding EI

88
Q

What types of income are not considered as earned income in determining RRSP contribution room?

A 
Investment income 
Taxable capital gains
Scholarships and bursaries received by taxpayer 
Business income as a limited partner 
EI benefits
Worker’s compensation benefits
CPP retirement benefits
OAS retirement benefits 
Retiring allowances
89
Q

What is the formula to calculate the maximum amount of retiring allowance money that can be rolled over to an RRSP or an RPP?

A
  • $2000 X # of years the employee was employed with the employer before 1996 and
  • $1500 X # of years of employment before 1989 during which the employee did not earn vested pension or DPSP benefits
90
Q

Can the rollover of retiring allowance affect the taxpayer’s normal RRSP limits and contributions?

A

No

91
Q

List 4 scenarios in which attribution does not apply when contributing to a spousal RRSP?

A
  1. Couple is living separate and apart due to a relationship breakdown
  2. Either spouse became a non resident
  3. Contributing spouse died
  4. Payment was a direct transfer from another plan
92
Q

When can a contribution be made to a spousal RRSP after death of the contributor?

A

In the year of death or within 60 days after the year of death.

93
Q

How is the RRIF minimum calculated?

A

If age 70 or younger:

RRIF minimum = Market value of RRSP as of Jan 1/ (90 - age) ^ 1

If age 71 or older:

RRIF minimum = Market value of RRSP on Jan 1 X CRA age factor

CFP Canada (26 decks)

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