|
2007 Budget - Questions and Answers
- Implementation of the proposed increase in the age limit
- Amendment to take advantage of the increase to the age limit
- Contribution to RRSP in 2007 if you are 70 or 71
- Transfer from RRIF to RRSP
- Financial institutions that do not allow making RRSP contributions if you are 70
- Minimum RRIF withdrawal
- RRIF tax withholding rules
- Phased retirement - Definition
- Phased retirement - Who qualifies
- Phased retirement - Benefits
- Phased retirement - Work time
- Phased retirement - Other pension rules
- Phased retirement - When can employers offer it
- Phased retirement - Do employers have to offer it
- Phased retirement - Where to get more information
- T4RIF slip reporting - Annuitants turning 70 or 71 in 2007 or 71 in 2008
Will my RPP, DPSP, or RRSP have to be amended to take advantage of the increase to the age limit?
Possibly. If your plan makes specific reference to the age limit being 69 years of age, the plan will have to be amended to take advantage of the increase in the age limit to 71. If the wording is general in nature and only refers to the age limit as defined in the Income Tax Act, the plan does not need to be amended.
Can I make a contribution to an RRSP in 2007, if I'm 70 or 71 years of age?
Yes, you can make contributions to an RRSP until the end of the year in which you become 71 years of age. You should verify your RRSP deduction limit to ensure that you have room to make contributions so they are not considered excess contributions. Your RRSP deduction limit can be obtained from your Notice of Assessment or Notice of Reassessment or by contacting us at 1-800-959-8281.
If I'm 70 or 71 years of age at the end of 2007, under the changes to the age limit, can I transfer the funds from my RRIF to an RRSP?
Yes, you can transfer the funds from your RRIF to an RRSP. However, you must convert the RRSP to a RRIF before the end of the year in which you become 71 years of age.
I'm 70 years of age and my financial institution will not allow me to make a contribution to my RRSP. With the changes to the budget, why won't they allow me to make contributions?
The CRA has advised employers, issuers, and carriers that they can amend and administer their plans in accordance with the legislation. It is up to employers, issuers and carriers to decide whether they will do so.
If I'm 70 or 71 years of age at the end of 2007, do I still have to make my minimum RRIF withdrawal?
No. The minimum RRIF withdrawal requirement will be waived in 2007 for those turning 70 or 71 in 2007, and in 2008 for those turning 71 in 2008.
Are there any changes to the RRIF tax withholding rules on account of these changes?
No, notwithstanding that the minimum RRIF withdrawal will be waived for certain eligible individuals, withdrawals up to the minimum amount that would otherwise be determined under the normal rules will continue to be exempt from tax withholding.
What is phased retirement?
The Income Tax Regulations currently prohibit employees from accruing further benefits under a defined benefit provision of a pension plan if they are currently receiving retirement benefits under a defined benefit provision of the plan or from another defined benefit plan of the employer or a related employer. Subject to certain requirements, the budget proposes to allow employees to receive pension benefits from a defined benefit plan, and to simultaneously accrue further benefits.
Who can qualify for phased retirement benefits?
To qualify for phased retirement benefits, employees must be at least 55 years of age and must be eligible for a pension that is not reduced because of their age, pensionable service, or a combination of both their age and pensionable service.
What phased retirement benefits can employers offer their employees?
Employers will be allowed to offer qualifying employees up to 60% of their accrued defined benefit pension. The 60% limit will be based on the amount of pension benefits (including bridging benefits) that would be paid from the plan if the employee were fully retired. As well, current rules that enable benefits to accrue for periods of absence or reduced pay will not apply to employees who receive phased retirement benefits and continue to accrue further benefits under the plan.
Will employees be required to reduce work time while receiving phased retirement benefits?
There will be no requirement that the partial pension be based on a reduction in work time, or that there be a corresponding reduction in salary. As a result, qualifying employees will be able to receive up to 60% of accrued pension benefits while continuing to work, part-time or full-time, as well as continuing to accrue benefits for that work.
How will other pension rules be affected by phased retirement benefits?
There will be no restrictions on when, or how often, an employee's accrued pension amount can be recalculated to take into account the employee's additional pensionable service and increased annualized earnings (if any) during a period of simultaneous benefit accrual and pension payment. Employers will not be prevented from limiting participation to specific employees under the plan terms. The prohibition against the payment of bridging benefits on a stand-alone basis will not apply for qualifying employees.
The prohibition on accruing additional benefits, while receiving pension payments, will continue to apply to designated plans as well as to persons who are connected with their employer.
When will employers be able to offer phased retirement benefits to their employees?
In order to provide for an appropriate period of consultation on the technical aspects of this measure, it is proposed that 2008 be the first year of service for which an employee will be permitted to accrue benefits under a defined benefit plan while in receipt of a partial pension.
Will all employees be able to benefit from phased retirement programs?
Since this tax measure is not mandatory, it will be up to employers to decide whether to amend the defined benefit pension plan to provide this benefit to all or some of their employees.
Where can I get more information about the phased retirement benefits?
More information about phased retirement benefits will be available shortly. Please check the CRA's website regularly for updates. The draft Regulations will be released by the Department of Finance in the near future.
The requirement for a minimum registered retirement income fund (RRIF) withdrawal will be waived in 2007 for annuitants who turn 70 or 71 in 2007, and in 2008 for annuitants who turn 71 in 2008. Many of these annuitants will still want this amount paid to them in 2007 and 2008. An amount paid to an annuitant from a RRIF that is not a minimum amount is an excess amount. The Canada Revenue Agency ordinarily requires that a RRIF excess amount be reported in box 16, Taxable amounts, and box 24, Excess amount, on a T4RIF slip.
Will the Canada Revenue Agency require the RRIF industry to reprogram their systems for 2007 and 2008 to report, in boxes 16 and 24 of the T4RIF slip, the excess amount that, but for the 2007 federal budget measure, would have been a minimum amount?
No. An amount paid in 2007 to an annuitant who turns 70 or 71 in 2007, and in 2008 to an annuitant who turns 71 in 2008 that would have been the minimum amount for the year can be reported in box 16 only of the T4RIF slip.
For information about how to report other RRIF amounts on T4RIF slips, please refer to the T4079, T4RSP and T4RIF Guide or call 1-800-959-5525.
|
