10/22/2010

Chapter 9 – RRSP

INCOME TAX
RRSP – registered retirement saving plan

LEVEL 1  Registration #
 An
in CRA within max. limit room
excellent tax deferred method
 Tax-free for RRSP accumulates within investments
until withdrawn
 RRSP
 RRSP contribution as deduction within limit reported
HR Block
on T1 Page3 Line208;
1
Canada Inc.
 RRSP withdraw from Box 16 of T4RSP slip, as
income to pay tax on T1 Page2 Line129.
September
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Chapter 9 – RRSP Chapter 9 – RRSP

RRSP Contributions:

RRSP Contributions:
 Taxpayers could contribute their own
RRSP till they turn 71 on Dec 31. that year;
 Taxpayers also could contribute their
spouses RRSP till they turn 71 on Dec 31.
that year;
 Set up RRSP with insurance companies, banks,
trust, or other licensed issuers;
 Invest various instruments as term deposit, GIC,
stock, bond, mutual funds, or T-bills;
 Unused RRSP deduction limit room could be carry
forward;
 Even taxpayer contribute RRSP this year, taxpayer
can decide whether want to deduct current year or
in future year.

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Chapter 9 – RRSP Chapter 9 – RRSP

RRSP Contributions:
RRSP Limit Room Example:

 Deduct RRSP up to maximum limit; Mary’s RRSP deduction limit in 2008 was $4,000. She
Or deducted $3,000 on T1 Page3 Line208 last year. She
 Carry forward RRSP deduction room to the has no unused deduction room from previous years.
future, without lose anything. How much she can RRSP deduction that she can
carry forward to 2009?

o SK Pension Plan - similar with RRSP - when you still have RRSP deduction room to carry forward to 2009
RRSP deduction limit room, only in SK, taxpayer can contribute
SKPP max. $600/per year. = $4,000 – 3,000 = $1,000
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Chapter 9 – RRSP Chapter 9 – RRSP

RRSP Deduction Limit calculation (P198):
RRSP & PA

1. + unused deduction room carry forward  Pension Adjustment (PA) is calculated by employer
and shows the value of RPP & DPSP benefits,
2. + 18% of 2008 Earned Income accrued in taxation year.
3. - 2009 pension adjustment (PA)  PA in Box52 of T4 slip or Box34 of T4A slip ⇒
4. + 2009 pension adjustment reversal report by taxpayer on T1 Page3 Line206.
 PA doesn’t directly affect taxpayer’s Net Income,
5. - 2009 past service pension adjustment
but it does subtract from RRSP deduction limit.

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Chapter 9 – RRSP Chapter 9 – RRSP

Example of PA:
Earned Income (P198)

Mary’s PA for 2008 was $3,000, carry forward RRSP was $2,000, +employment income, grant, salary;
2008 earned income was $9,000. How much is Mary’s RRSP in +net income from business
2009? +disability payment
Calculations: +net rental income
+ 2008 unused deduction room of RRSP = $2,000 +taxable support payments
+ 18% of 2008 earned income = 18% * $9,000 = $1,620 -union, professional fee
- 2008 PA = $3,000 -employment expenses
Current 2009 RRSP limit room = $620 -net business loss
-net rental loss
-deductible support payments
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Chapter 9 – RRSP Chapter 9 – RRSP

RRSP Deduct Amount
RRSP Deduct Amount

 Undeducted RRSP Contribution – taxpayer could  RRSP Excess contribution :
contribute RRAP and not deduction that year, so taxpayer  If taxpayer ≥ 19:
not deduct this portion on T1 Page3 Line208 and carry  the excess RRSP contribution could ≤ $2,000 without
forward it in the future. any penalty;
 the excess RRSP contribution > $2,000, the penalty tax

 RRSP Excess contribution – if Undeducted RRSP of 1% per month

Contribution exceed taxpayer’s maximum deduction limit  If taxpayer < 19:
that year, call excess contributions, which is calculated on  the excess RRSP contribution could subject penalty tax
a cumulative basis. of 1% per month, no $2,000 cushion!

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Chapter 9 – RRSP Chapter 9 – RRSP

Example: In 2009, Mary has a max. RRSP  undeducted RRSP? No! all deducted!
limit as $3,000. She bought $2,200 of RRSP
and deducted it on T1 Page3 Line208.  unused PPSP carry forward?
Does Mary have any undeducted RRSP? Yes! = $3,000 – 2,200 = $800
unused PPSP carry forward?
Excess RRSP?  Excess RRSP? No!

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Chapter 9 – RRSP Chapter 9 – RRSP

Example: In 2009, Mary has a max. RRSP  undeducted RRSP? Yes! = $2,200
limit as $3,000. She bought $2,200 of RRSP
and not report it on T1 Line208.  unused PPSP carry forward?
Does Mary have any undeducted RRSP? Yes! = $3,000 – 2,200 = $800
unused PPSP carry forward?
Excess RRSP?  Excess RRSP? No!

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Chapter 9 – RRSP Chapter 9 – RRSP

Example: In 2009, Mary is 22 years-old and  undeducted RRSP? Yes! = $3,000

has a max. RRSP limit as $3,000. She bought  unused PPSP carry forward?
$6,000 of RRSP and not report it on T1 No!
Line208.  Excess RRSP?
Does Mary have any undeducted RRSP? Yes! = $6,000 – 3,000 = 3,000
unused PPSP carry forward?
Excess RRSP?
 Penalty = $3,000 – 2,000 = $1,000

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Chapter 9 – RRSP Chapter 9 – RRSP

Spousal RRSP: Example: Kevin (71) has RRSP room of $2,000. Mary
1. Contributor – buy RRSP to another person & deduct it (60) has a RRSP room of $0.
on T1 Page3 Line208;
Different persons
1. Kevin can’t contribute RRSP for himself
2. Annuitant – own RRSP as property
anymore, due to he is ≥ 71.
2. Kevin can buy $2,000 RRSP for his wife, due to
Example: if husband bought RRSP for wife = spousal
RRSP. So he is the only one can claim RRSP deduction on she is < 71, even Mary has no RRSP limit room.
T1 Page3 Line208. 3. If Mary is also ≥ 71, then they can’t buy RRSP

anymore.
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Chapter 9 – RRSP Chapter 9 – RRSP

Example: Kevin has RRSP room of $3,100. He contributed
RRSP Withdraw:

A spousal RRSP of $1,600 for his wife – Mary; and
 RRSP can be withdrew when taxpayer becomes a
Contributed $3,000 for himself.
senior = 65 year-old;
How much Kevin can deduct on his T1 Page3 Line208?
Otherwise:
 All the withdraws will report as income on T1
 Due to Kevin’s max. RRSP room = $3,100 < his total
contribution of $4,600 = 1,600 + 3,000; therefore: Page2 Line129 in Box16 of T4RSP slip.
total deduction can’t exceed personal max. RRSP  3 Exceptions:
limit!  Home Buyers’ Plan (HBP) – first-time home
 Lifelong Learning Plan (LLP)
 Emergency
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Chapter 9 – RRSP Chapter 9 – RRSP

 Home Buyers’ Plan (HBP) – first-time home

Tax-free RRSP withdrawal up to $20,000 or
($25,000 if after Jan 27, 2009) to purchase or build
taxpayer’s first-time home as a down payment;

For couples, if both have RRSP, each can withdraw
up to $20,000 or ($25,000 if after Jan 27, 2009).
 Home Buyers’ Plan (HBP) – first-time home

Qualified RRSP withdrawal is tax-free, but:
 must repay RRSP contribution over a
period of 15 years, beginning 2nd year
after withdrawal;
 If not repay as required, RRSP
withdrawals will be taxable as income on
T1 Page2 Line129.

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Chapter 9 – RRSP Chapter 9 – RRSP

 Home Buyers’ Plan (HBP) – first-time home  Home Buyers’ Plan (HBP) – first-time home

Rule of Qualify (P206)
2 Stages:
 Before withdraw, a written agreement to buy or Stage 1 - RRSP withdrawals
build a first-time house; reported in Box 27 of T4RSP slip and need enter on
 Must fill form T1036, otherwise the withdraw will Line15 of federal schedule 7 Part E.
be taxable as income;  Stage 2 – RRSP repayment

 Acquisition date no later than Oct 1 of the year 2 years later, start RRSP repayments, within 15
following the year of withdrawal, etc. years using taxpayer’s own RRSP with a RRSP
repay notice from CRA.

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Chapter 9 – RRSP Chapter 9 – RRSP

 Home Buyers’ Plan (HBP) – first-time home  RRSP contributions Same As RRSP withdrawals ≤
• Stage 1 - RRSP withdrawals 89-days:
 RRSP contributions Same As RRSP withdrawals ≤

89-days waiting period: Example: Mary made a RRSP contribution of $5,000

 RRSP balance after withdrawals ≥ RRSP contribution
is deductible;
 And contribute in the 89-days prior to the withdrawals.
on Jan. 1, 2009. However, in Feb 1, 2009, she decided
to buy a first-time home. She withdrew a $10,000
from RRSP as a down payment.
⇒ How much RRSP contribution that Mary could deduct on T1
Page3 Line208?

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Chapter 9 – RRSP Chapter 9 – RRSP

Example: How much RRSP contributions Mary could deduct?
Due to Mary made RRSP contribution is same RRSP
in 89 days prior to RRSP withdrawals for her first-time
Home,
So: She called bank, and knew that
RRSP Balance after withdrawals = $4,200 < $5,000;
Therefore:
Only $4,200 RRSP contributions can be deducted on her
T1 Page3 Line208.
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 RRSP contributions Same As RRSP withdrawals >
89-days:
Example: Mary made a $5,000 RRSP contribution on April 1,
2009, so she got a total $15,000 RRSP in BMO. On May 1, 2009,
her RRSP got a $1,000 investment earning and increased her
RRSP balance up to $16,000.
⇒ If Mary made a HBP withdrawals after June29, 2009, her
$5,000 RRSP contribution fully deductible on T1 Line208,
due to > 89-days waiting period!
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Chapter 9 – RRSP
⇒ If Mary withdrew a $11,000, then:
RRSP balance = $16,000 – 11,000 = $5,000 ≥ RRSP
contribution of $5,000, so all her RRSP contribution is fully
deductible.
⇒ If Mary withdrew a $12,000, then:
RRSP balance = $16,000 – 12,000 = $4,000 < RRSP
contribution of $5,000, so Mary has to render that $1,000 =
$5,000 – 4,000 as non-deductible, and only $4,000 is
deductible.
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Chapter 9 – RRSP
⇒ If Mary withdrawals $5,000 from RRSP No.1,
and withdrawals $15,000 from RRSP No.2,
then:
RRSP balance = $25,000 – 15,000 = $10,000 > RRSP
contribution of $10,000, so full $10,000 in RRSP No. 2 is
deductible.
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Chapter 9 – RRSP

Stage 2 – RRSP repayment :
Example: if Mary withdrew her RRSP in
anytime of 2009 for her first-time home
purchasing, then:
Her first RRSP repayment should be March 1,
2012.
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Chapter 9 – RRSP
Example: Mary has two RRSPs: $5,000 in RRSP No.1; and
$15,000 in RRSP No.2 and she made a RRSP contribution of
$10,000 in No.2; and she also got a withdrew $20,000 < 89-days
Period.
⇒ If Mary withdrawals entire $20,000 from RRSP No.2, then
RRSP balance = $25,000 – 20,000 = $5,000 < RRSP
contribution of $10,000, so Mary has to render that $5,000 =
$10,000 – 5,000 as non-deductible, and only $5,000 is
deductible. .
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Chapter 9 – RRSP
 Home Buyers’ Plan (HBP) – first-time home

Stage 2 – RRSP repayment :
 Within 60 days of end 2nd year following withdrawal
year;
 A specific designation for repayment in federal S7
Part B - Line246 HBP (Page 212);
 RRSP repayments can’t be deducted on T1 Page3
Line208;
 If repayments less than CRA required, then shortfall
will be treated as taxable income, report on T1 Page2
Line129.
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Chapter 9 – RRSP

Stage 2 – RRSP repayment :
Example: if Mary withdrew her RRSP of $1,000 in
March 2009 for her first-time home purchasing, then:
 Minimum first RRSP repayment should be
On March 1, 2012 = $1,000 * 1/15 = $66.67.
 Then minimum second RRSP repayment in 2013 =
(1,000 – 66.67) * 1/14 = $66.67.
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Chapter 9 – RRSP Chapter 9 – RRSP

Example: if Mary withdrew her RRSP of $12,000 in 2009 for her

HBP, then:  If Mary repay $1,500 in 2012, then first RRSP
 In 2012, minimum first RRSP repayment = $12,000 * 1/15 =
repayment = $1,500.
$800.
 In 2013, minimum second RRSP repayment = (12,000 – 800) *
1/14 = $11,200 * 1/14 = $800. Therefore:
 In 2013, minimum second RRSP repayment =
⇒ If Mary only repay $600 in 2012, the shortfall = $200 = $800 – (12,000 – 1,500) * 1/14 = $10,500 * 1/14 = $750.
600 = taxable income on T1 Page2 Line129; Therefore:
she still made RRSP repayment as full $800 in 2012.

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Chapter 9 – RRSP Chapter 9 – RRSP

 Lifelong Learning Plan (LLP)  Lifelong Learning Plan (LLP)

Tax-free RRSP withdrawals to finance
2 Stages:
education for taxpayer or his/her spouse: Stage 1 - RRSP withdrawals
 Full-time post secondary programs of at least 3 reported in Box 25 of T4RSP slip and
months;
need enter on Line17 of federal
 Max. $10,000 / per year or Max. $20,000 over a
period up to 4 years.
schedule 7 Part B.

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Chapter 9 – RRSP Chapter 9 – RRSP

 Lifelong Learning Plan (LLP)  First Home Buyers’ Amount (HBA)

Stage 2 – RRSP repayment :
 Within 60 days of end 5th year following withdrawal year
within 10 years;
 A specific designation for repayment in federal S7 Part B -
Line262 LLP (Page 212);
 RRSP repayments can’t be deducted on T1 Page3
Line208;
 If repayments less than CRA required, then shortfall will be
treated as taxable income, report on T1 Page2 Line129.

Non-refundable tax credit of $5,000 for purchasing first-time
home on federal S1 Line369;

First time home buyer = taxpayer not own or live in another
home in that purchase year or any of 4 proceeding years;

If married, even spouse or common-law partner own or live in
another home in that purchase year or any of 4 proceeding
years; taxpayer could still eligible for this credit;

Tax saving will be $750 = $5,000 * 15%;

Couple can split this $5,000 tax credit.

 For HBP & LLP, taxpayer can repay as max. as they can! 41 42

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Chapter 9 – RRSP Chapter 9 – RRSP

 Tax Free Saving Account (TFSA)  Tax Free Saving Account (TFSA)

Taxpayer must >17 years-old resident in 2009;
Interests & withdrawals in TFSA are tax-free;

Can contribute a maximum annual limit room =
Withdrawals are flexible anytime;
$5,000 / per year;

CRA includes this in notice of assessment;

Contribution room can carry forward to the next
year;
Any exceed contribution subjects 1% per
month penalty tax.

Limit will be $5,000 for 2010, 2011, but will be
$5,500 in 2012;

Max. $5,000 = Non-deductible tax benefit.
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Chapter 9 – RRSP

 Tax Free Saving Account (TFSA)

Example: Mary contributed $4,000 in TFSA in 2009 . Later on in
that year, she withdrew a $1,000 for personal use.
How much contribution room she can use in 2010?
So:
2009 carry forward contribution room = $5,000 – (4,000 -1,000)
= $5,000 – 3,000
= $2,000
2010 max. contribution room = $5,000
∑ 2010 contribution room = $7,000
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