A Registered Retirement Savings Plan (RRSP) is a contract registered with the Canada Revenue Agency in which individuals invest for their retirement.
RRSPs allow individuals to defer paying income tax until they make withdrawals from the plan.
How the contribution room is calculated
- Contributions to your RRSP and/or your spouse's RRSP can be deducted from your annual net income, subject to the following limit:
- Unused RRSP contribution room for pervious years since 1991
- Plus: the lesser of:
- annual limit for the current year (2009: $21,000; 2010: $22,000;
011: $22,450); OR
- 18% of the previous year’s earned income;
- Minus: the previous year’s Pension Adjustment (PA);
- Minus: the current year’s Past Service Pension Adjustment (or the previous year if it is a PSPA Exempt from Certification), where applicable;
- Plus: the current year’s Pension Adjustment Reversal (PAR), where applicable.
General information
- You may contribute to your spouse’s RRSP to allow you to split your income at retirement. (For RRSP purposes, a spouse is a legally married partner, civil-union partner or common-law partner. Common-law partners are two people, regardless of sex, who have lived together in a conjugal relationship for at least 12 continuous months or are parents of a child by birth or adoption). In such cases, the money accumulates in your spouse’s name, but you enjoy the tax deductions.
- If you cash in your RRSP, the money you withdraw is added to your income the year it is withdrawn.
- The money in your RRSP must be transferred to a RRIF or be converted into a life annuity or term certain annuity by December 31 of the year you turn 71 in order to avoid being taxed on the entire value of the plan.
Desjardins Financial Security’s RRSP-eligible savings products:
- Term investments
- Market-linked term investments
- Guaranteed investment funds
Advantages
- In addition to being tax-deductible, your RRSP investment grows tax-free.
- Unused contribution room can be accumulated indefinitely (but you cannot contribute past the year you turn 71).
- You may temporarily withdraw a certain amount from an RRSP without paying income tax if you purchase a home under the Home Buyers’ Plan (HBP), or return to school under the Lifelong Learning Plan (LLP), provided you meet the conditions of these plans.
- You may hold up to 100% foreign content in your RRSP.
Latest RRSP news for 2010-2011
Deadline for Contributing to an RRSP
The deadline for RRSP contributions that can be deducted for the 2010 tax year is Tuesday, March 1, 2011 (inclusive).
Post-death decline in the value of an unmatured RRSP or a RRIF
If an unmatured RRSP or a RRIF declines in value between the date of death and the date of final distribution to the beneficiary or estate, the deceased person’s legal representative may request to deduct the losses from the deceased’s final tax return, provided all of the prescribed conditions are met.
Annual RRSP contribution limit
- The annual limit for 2010 is $22,000 and $22,450 for 2011.
- For more information, please call the Canada Revenue Agency (CRA) at 1-800-267-6999 or visit their website at http://www.arc.gc.ca/.
Spousal RRSP contributions
You may contribute to your spouse’s RRSP rather than your own to allow income splitting at retirement.
This strategy is also a good way to extend the older spouse’s contribution period. If they have any unused contribution room, they may contribute to the younger spouse's RRSP until the end of the year in which the spouse turns 71.
When you contribute to your spouse’s RRSP, you no longer have any rights to these amounts and the amount you are entitled to contribute to your own RRSP is also reduced.
If contributions have been made to your spouse’s RRSP and the spouse makes a withdrawal, the taxpayer who deducted the contributions must include the lesser of the following amounts in their income for the year of the withdrawal:
- he amount they contributed to their spouse's RRSP for the year of the withdrawal and the two previous years (“three-year rule”)
- he amount the spouse withdrew from their RRSP
Pension income splitting
Individuals who receive eligible pension income can allocate up to 50% of that income to their spouse in computing their taxable income, both at the federal level and in Quebec.
The pension income that is eligible for splitting is the same pension income that is eligible for the federal tax credit.
For individuals aged 65 and over, the income that can be split includes:
- life annuity payments received under an employer-sponsored registered pension plan (RPP)
- payments received under a registered retirement income fund (RRIF)
- annuity surrenders (but not withdrawals) received under a registered retirement savings plan (RRSP)
- annuity payments received under a deferred profit sharing plan (DPSP)
- the income portion of a prescribed annuity contract
- the income accrued under a non-prescribed annuity contract
For individuals under age 65, the eligible pension income includes:
- life annuity payments received under an RPP
- the following amounts received following the death of the individual’s spouse or common-law partner:
- RRIF payments
- RRSP annuity payments
- DPSP annuity payments
- the income portion of a prescribed annuity contract
- the income accrued under a non-prescribed annuity contract
Eligibility for this income splitting is based on the age of the pensioner and not the age of the spouse to whom the income is allocated.
This measure is applied at the time of the annual tax return. The amount allocated to the spouse will be deducted from the net income of the pensioner who received the pension income and included in the net income of their spouse.
This measure benefits couples with a single eligible pension income where the spouse who does not receive a pension income has a lower income.
In light of the splitting, both spouses may take advantage of the pension income tax credit, federally and in Quebec, subject to the eligibility conditions. The splitting may also have a positive impact on the age tax credit and the Old Age Security benefit repayment, which are based on each spouse’s personal income tax rate.
Both spouses must agree to this allocation. This agreement is only valid for one year at a time, and the splitting is elected in the individual’s annual tax returns.
Under Quebec tax rules, the spouses may make different elections regarding splitting than they did for federal tax purposes, subject to the limit of 50% of the eligible income.
Revenu Québec has specified that the allocated pension income will be deducted from the total income calculated for the individual allocating the income and added to the spouse’s total income in order to establish the eligible annual contribution for the Health Services Fund (HSF).
However, the person whose pension income is split will be jointly responsible for the tax and HSF contribution payable by the spouse to whom this income was allocated.
RRSP exemption
In 2007, changes were made to the Bankruptcy and Insolvency Act, R.S. c. B-3 (hereafter BIA) regarding, in particular, exemption from seizure status of RRSPs and RRIFs.
Below are the relevant excerpts from section 67 of the Act:
The property of a bankrupt divisible among his creditors shall not comprise:
b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides;
(…)
b.3) without restricting the generality of paragraph (b), property in a registered retirement savings plan or a registered retirement income fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy.
Important points:
There are two different exemption from seizure protections for RRSPs and RRIFs, one under the federal BIA and the other under provincial law (C.C.Q. and An Act Respecting Insurance):
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Paragraph b) of the BIA provides that property that is exempt from execution or seizure under any provincial laws is also exempt from seizure in bankruptcy. In Quebec, in December 2005, Bill 136 amended the Act Respecting Insurance, R.S. Q. c. A-32, such that as of March 1, 2006, provided they meet certain conditions, RRSPs and RRIFs issued by insurers are exempt from seizure at all times. The contract must, in particular, meet the conditions to take the form of an annuity contract, and the appropriate beneficiaries must have been designated in accordance with article 2457 C.C.Q. (the spouse or civil-union partner, the descendant or ascendant of the holder or participant).
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In bankruptcy (or proposal) situations only, parties other than insurers may also claim the exemption from seizure of registered retirement savings plans or registered retirement income funds, as defined in the Income Tax Act, or in any prescribed plan, under paragraph b.3) of the BIA. Contributions made to the plan or fund within the 12 months preceding the date of bankruptcy are not covered by the exemption from seizure mentioned in paragraph b.3). The BIA also provides that a judge may decide that any contributions made prior to this 12-month period must be included in the bankrupt’s property if the bankrupt has committed any fraudulent acts described in the BIA.
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Consequently, subject to the above, RRSPs and RRIFs could be seized if an individual facing financial hardship has their property seized without declaring bankruptcy and this property is not covered by either of the two preceding situations.
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Desjardins Financial Security: Registered plans
Your RRSP, your TFSA and your projects
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