2021-09-30

FIP502: PLANNING FOR

RETIREMENT, EDUCATION,
AND INDIVIDUALS WITH A
DISABILITY

Week 5
Registered Retirement Savings Plans
(RRSPs)-Part 1
1

SAVINGS VEHICLE REGISTERED BY

Registered THAT PROVIDES
INDIVIDUALS TAX-
THE FEDERAL
GOVERNMENT
Retirement SHELTERED SAVINGS OF CANADA

Savings Plans
(RRSPs)
DESIGNED TO EARNINGS ON
ENCOURAGE SECURITIES
CANADIANS TO SAVE HELD IN THE
FOR RETIREMENT PLAN ARE NOT
TAXED

1
 2021-09-30

Build Wealth Age 24-64

• Contribution reduces net income & taxes

• If you earned $70000 last year, you can contribute up to 18%
($12600) to your RRSP this year (subject to a maximum limit)
• Taxable income : If your earning this year is $75000, your
taxable income would be $75000 -$12600 =$62,400
• Investments grow tax-deferred (lower tax bracket)

Retirement Age 65 -71

By end of year you turn 71, must convert RRSP into:

• Lumpsum payment (higher taxes)
• Annuity (Cash flows with periodic payments)
• Registered Retirement Income Fund (RRIF)
• Life Income Fund (LIF) : (Similar to RRIF for locked in RRSP/LIRA)
• Locked-In Retirement Income Fund (LRIF) : (Used in some
provinces)

2
 2021-09-30

Parties to an RRSP
• Annuitant / Plan owner
• Contributor
• Beneficiary
• Issuer/Provider

Types of RRSPs

Individual Self directed Spousal RRSP Group RRSP

RRSP RRSP

3
 2021-09-30

Individual RRSP
• Personal savings plan based on contract between annuitant and
the financial institution

• Usually focuses on specific group of investments

• Mutual funds from fund dealer
• Segregated funds from life insurance firm
• Term deposits from bank or trust company

Self directed RRSP

• Provides a wider choice of qualified investment
options (e.g. Stock , bonds)
• Available through financial institutions for an annual
fee plus commissions
• These are non tax-deductible expenses
• Designed for people who want to actively manage
their retirement portfolio
• Contributions can be in cash or in-kind
• Transfer of securities is a deemed disposition
subject to capital gains tax
• Cannot deduct capital losses incurred on such a
transfer (Non arms length rules)

4
 2021-09-30

Offered by employers as an additional

retirement savings option for employees

Series of individual RRSP accounts where

contributions are made through payroll
Group deductions

RRSP
Flexible alternative to RPP

Many plans involve both employee and

employer contributions

Contributions
• Limited
• 18% of PY earned income up to the maximum money purchase limit
• Pension Adjustments (PA), Pension Adjustment Reversals (PARs) &
Past service Pension Adjustments (PSPAs)
• No Minimum age (based on earned income)
• Maximum age: up to the end of the year annuitant turns age 71
• Contributions within first 60 days of subsequent year (usually March
1st deadline)

10

5
 2021-09-30

Based on 18% of taxpayers earned

income from previous years up to a
maximum $ limit
Current • Limit for 2019: $26500 (18% of
contribution $147222)
• Limit for 2020 : $27230 (18% of
limit $151278)
• Limit for 2021: $27830 (18% of
$154611)

11

Includes…………. Does not include…………..

• Employment income • Investment income
RRSP (salary, commissions, (dividends, interest)
and taxable capital
wages)
Contributions • Royalties (Published
gains
• Scholarships or
work)
bursaries
• Net Rental Income (real
property) • Business income
earned as a limited
• Receipt of taxable partner
Earned income child/ spousal support
• Employment insurance
payments
and workers
• Receipt of CPP compensation benefits
disability pensions
• Retirement benefits
(CPP,OAS)

12

6
 2021-09-30

• Value of the benefits earned or accrued resulting

Pension from participation in an RPP or DPSP
Adjustment
• Ensures that all individuals with comparable income
(PA) will have access to comparable tax assistance,
regardless of the type of plan they belong to

• Benefit entitlement is the value of the annual benefit

accrued to the plan member:
(Years pensionable earnings * unit percentage earned)

13

• DPSP: Employer contributions to a DPSP for

a given year
• DCP: Sum of employer and employee
contributions for a DCP
Calculation of • DBP: Formula
PA………… =(9* benefit entitlement) -$600

• Participants in the DBP who accrue a 2%

benefit will have close to the maximum
benefit allowed
• Little room for RRSP contribution

14

7
 2021-09-30

RRSP Contribution room………

A taxpayers yearly contribution limit is determined by…

• Earned income from previous year (18% of income or $27830 in

2021)
• Maximum dollar limit established by CRA
• Contributions if any, to an RPP or DPSP in the previous year (PA)

15

SOURCE: https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-
administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html

16

8
 2021-09-30

Contribution room calculation…….

18% of previous years earned income up to the RRSP contribution
limit for the current year

• Minus: the Pension Adjustment (PA) based on preceding year

• Plus: the Pension Adjustment reversal (PAR) for the current year
• Minus: Any past service pension adjustment (PSPA) for the current
year

17

Pension Adjustment Reversal (PAR) Past Service Pension Adjustment (PSPA)

• Created when a terminating member does
not eventually acquire a vested interest
in the benefit of a pension plan
• Restores the reduction in an individual’s
RRSP deduction room
• Increases an individual’s RRSP deduction
limit in the year it is credited to the
individual
• Sum of additional pension credits that would
have been included in the plan member’s
pension adjustment if
• The upgraded benefits had actually been
provided, or
• Additional service has been credited, in the
previous years
• Will reduce the member’s RRSP contribution
room

18

9
 2021-09-30

Unused deduction room

• Unused deduction room is carried forward indefinitely
• Ex: work part-time as a student, but do not contribute to RRSP until you
work full-time
• Individuals who cannot contribute to an RRSP because of their age
may still deduct RRSP contributions made in prior years that have
not been deducted
• Ex: You turn 71 this year and have $10000 unused carry forward from
earlier years
• For tax planning, you can claim a deduction of $2000 per year for the next
five years
• Contributions to an RRSP may be in the form of cash or in-kind

19

Transfers to an RRSP

Amounts transferred to an RRSP that are outside of RRSP

deduction limits

• Retirement Allowances
• Transfers from other deferred –income plans

20

10
 2021-09-30

Over contributions
• Amounts contributed to an RRSP that are greater than the total
available deduction limit
• Overcontribution limit currently is $2000
• A 1% per month tax is imposed on contributions that exceed the
over-contribution limit

21

RRSP Withdrawals: Income tax implications

• Lump sum withdrawals out of an RRSP

during the lifetime of the annuitant are
subject to withholding tax

• Calculated as a percentage of the total

amount of the withdrawal

• Cash withdrawals by the annuitant are

subject to withholding tax, including the
withdrawal of excess contributions
22

22

11

Tax implications contd…….
In most provinces, withholding tax :
23
Tax implications……….
An RRSP may receive payments
directly ..
from other qualified plans
without incurring an
immediate tax liability
• The receiving annuitant
must be age 71 or
younger at the end of the
year in which the funds
are received.
24
2021-09-30
• 10% ≤ $5000
• 20% > $5000 to $15000
• 30% > $15000
23
Types of plans that may transfer
directly to an RRSP
• Property from an unmatured RRSP
• Securities such as stocks or bonds
• Lump sum payment from
• Registered Pension Plan (RPP)
• Deferred Profit-Sharing Plan
(DPSP)
• Excess amount from a RRIF
• (Above the required minimum
withdrawal)
12
 2021-09-30

When the annuitant dies

If the assets of the unmatured RRSP pass to
someone other than spouse, common law
partner, or qualified child or grandchild

• Fair market Value (FMV) of the plan assets

must be included in the annuitant’s income
for the year of death
• FMV effectively calculated immediately prior
to annuitant’s death.

25

25

Refund of premiums

Refers to any amount paid out of an RRSP prior

to the plan’s maturity to the deceased
annuitant’s:
• Spouse or common law partner
• Dependent child or dependent grandchild
• Estate, if no beneficiary is named, in some
circumstances

26

26

13
 2021-09-30

Refund of premiums to spouse

• Spouse or partner may transfer funds
into an RRSP, RRIF or qualifying
annuity without immediate tax
consequence

• Funds must be transferred to

qualifying plan within 60 days of the
year end, otherwise:
• Considered to be taxable income
for the year received.

27

27

Refund of premiums to child

Financially dependent child or grandchild receiving refund
of premiums can either:
• Pay tax associated with receipt of RRSP benefit in the
year payment is received
• Transfer funds to a term-certain-to-age-18 annuity, which
spreads out the tax consequences

Mentally or physically disabled child/grandchild can either

• Pay tax associated with receipt of RRSP benefit in the
year payment is received
• Transfer funds into an RRSP, RRIF or qualifying annuity
without immediate tax consequence.

28

28

14
 2021-09-30

Spousal RRSP • Taxpayer can make eligible contributions to an RRSP held

in the name of his or her spouse or common-law partner
• Example: Wife earns $200,000 per year as a surgeon,
husband earns $75000 as a writer, so she may choose to
contribute to his RRSP
• If the wife makes contribution to a spousal RRSP:
• The wife (contributing spouse) is entitled to the
corresponding tax deduction
• The contribution reduces the Contributing spouse’s
(wife) RRSP room
• Wife has $10000 in RRSP contribution room for 2020 and
contributes $8000 to husband’s RRSP
• Does not affect her husband's contribution room
• Wife receives $8000 tax deduction for the
contribution
29

29

……….Spousal RRSP
• Advantageous where annuitant will be
in lower tax bracket than contributing
spouse during retirement years.
• (where RRSP assets are used to
provide retirement income.)
• Ex: Surgeon’s pension larger than
writer’s, so surgeon’s RRSP income
taxed in higher bracket

30

30

15
 2021-09-30

Withdrawals from Spousal RRSP

• Income may be attributed back: contributions made in the current
year or in the previous two years (Current + 2 year rule)
• Attribution may apply if the spousal RRSP should become
deregistered

Question: The wife contributes $10000 to the husband’s RRSP in

2020. When can he withdraw the funds without having them
attributed back to her?
2023

31

31

Exception to attribution rule……

Attribution rules
DO
NOT
APPLY if The spouse transfers money to:
• A RRIF and makes only
minimum withdrawals
• An annuity that cannot be
commuted for three years

32

32

16
 2021-09-30

Exception to attribution rule……

Attribution rules • The year that the contributing
spouse dies
DO
• The year that the RRSP owner
NOT dies and the RRSP is
APPLY terminated
• If the contributing spouse or
annuitant is a non-resident at
the time of the withdrawal

33

33

Exception to attribution rule……

Attribution rules • After a relationship breakdown
(divorce or separation) and the
DO spouses or partners are living
NOT separate and apart
APPLY if • The amount is a commutation
payment that is transferred
directly for a spouse or partner
to:
• Another RRSP /RRIF
• An eligible annuity that cannot be
commuted for at least 3 years

34

34

17
 2021-09-30

Contributing spouse over age 71

• Taxpayer can contribute to spousal RRSP

up to the end of the year in which her
spouse or partner reaches age 71
• The contributing spouse must have
available contribution room in her RRSP
• 60-day extension rule does NOT apply in
the year annuitant spouse reaches age 71

35

35

Retiring allowance
• Payment made by employer in recognition of long
service at retirement or as part of a severance
package

• Funds may be rolled over into an RRSP or RPP

under limited conditions

• Joined after 1995: Not eligible for rollover

• Prior to 1996 : $2000 *number of years with company prior to 1996
(Partial years count as a full year)

• Prior to 1989 : $1500 *number of years with company prior to 1989

36

36

18
 2021-09-30

Summary………………

01 02 03 04

Savings vehicle Types of RRSPs: Early Spousal RRSP is

that provides Individual, self withdrawals beneficial if
individuals tax- directed, from an RRSP annuitant is in a
sheltered spousal & result in a lower tax
savings Group RRSPs withholding tax bracket than
(excluding HBP contributor
/LLP)

37

37

19