Ch9so - Chapter 9 Deferred Income Plans Questions 9-1 The objectives for the 1991 “Comprehensive Pension Reform ” were • To promote equality

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 9 Deferred Income Plans Questions 9-1 The objectives for the 1991 “Comprehensive Pension Reform ” were: • To promote equality between taxpayers by providing them with similar opportunities for tax- assisted retirement savings, regardless of whether the individual is contributing to an RRSP (Registered Retirement Savings Plans), a RPP (Registered Pension Plan), or a DPSP (Deferred Profit Sharing Plan). This is accomplished by limiting contributions to any of the registered plans to 18% of the previous years’ earned income or the stated dollar limit less a pension adjustment for members of a RPP or a DPSP. This ensures no one taxpayer has an unfair advantage over others. 103 104 TAXATION IN CANADA • To provide more flexibility in the timing of contributions to deferred income plans. The new legislation allows a person to catch up on his/her contributions, within limitations (paragraph 146(1)( l )). • To provide incentives for profit sharing with the development of equitable rules for DPSPs. For the most part, the tax treatment of DPSPs is now on par with RRSPs and RPPs. For this reason, it is more attractive for companies to use profit sharing plans for employee-deferred income purposes. However, the employer contribution is limited by the taxpayer because the government wants to ensure that the taxpayer does not place all of his/her retirement funds in a riskier fund. DEFERRED INCOME PLANS 105 9-2 Money purchase plans and defined benefit plans differ in the ways that payments are determined upon maturation of the participant. As the name suggests, a money purchase plan is simply annual contributions made to a fund by both the employer and employee that are held in trust and invested until the employee is ready to make withdrawals within the regulations of the plan. At this time, payments are made to the employee based on the plan balance. On the other hand, a defined benefit plan works in the opposite direction. The payments that the employee will receive upon maturity are defined by an equation that incorporates a number of factors, such as employee salary, years of service, and age of retiree. Annual contributions are calculated by an actuary using various statistical charts and economic predictions, and these contributions are split between the employee and employer....
View Full Document

This note was uploaded on 06/03/2009 for the course BUSINESS AIT 805 taught by Professor Shirenekhan during the Winter '09 term at Seneca.

Page1 / 25

Ch9so - Chapter 9 Deferred Income Plans Questions 9-1 The objectives for the 1991 “Comprehensive Pension Reform ” were • To promote equality

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online