CTP13_Chapter_10

Benefit money purchase money defined contribution

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Unformatted text preview: Employer Contributions • General Rules • Limitation – Lesser Of – 18 % employee compensation – money purchase limit for the year Copyright © 2014, Clarence Byrd Inc. 34 Canadian Tax Principles Registered Pension Plans (RPPs) – Employee Contributions • Same overall limit Same – Options At Retirement • Generally governed by plan document Copyright © 2014, Clarence Byrd Inc. 35 Canadian Tax Principles Pooled Registered Pension Plans (PRPPs) – Problem: Many individuals do not save for retirement – Proposed Solution – Pooled RPPs • Money purchase plans run by a financial institution • Small employers can participate • Self employed individuals can participate • Limits and other rules like RRSPs – Should encourage more disciplined savings Copyright © 2014, Clarence Byrd Inc. 36 Canadian Tax Principles Registered Retirement Income Funds Registered (RRIFs) (RRIFs) • Establishment – Only transfers from other plans • Withdrawals – No Maximum – Minimum (Under 79) • FMV ÷ (90 - Age) – Minimum (79+) • 8.53% At Age 79 • 20% At Age 94 And Subsequent Copyright © 2014, Clarence Byrd Inc. 37 Canadian Tax Principles Registered Retirement Income Funds (RRIFs) • Death Of Registrant – FMV will be included in final tax return – Rollovers • To a spouse • To a dependent child or grandchild if infirm Copyright © 2014, Clarence Byrd Inc. 38 Canadian Tax Principles Registered Retirement Income Funds (RRIFs) • Evaluation – Continuing Tax Deferral – Flexibility – Better rates than annuities Copyright © 2014, Clarence Byrd Inc. 39 Canadian Tax Principles Deferred Profit Sharing Plans (DPSPs) • Contributions – Employer only • Earnings In The Plan – Accumulate tax free • Withdrawals – Subject to tax as ordinary income – No favourable treatment for capital gains or dividends Copyright © 2014, Clarence Byrd Inc. 40 Canadian Tax Principles Deferred Profit Sharing Plans (DPSPs) • Evaluation – More flexibility for employer – Similar to RPP for employee – Can’’t be used if the employer or member of his family is a t beneficiary of plan (owner/managers) beneficiary Copyright © 2014, Clarence Byrd Inc. 41 Canadian Tax Principles Profit Sharing Plans – Contributions • Employer only • As taxable benefit to employee – Earnings In The Plan • Taxed when accrued – Withdrawals • Not taxed – 2012 Budget adds tax on “Excess PSP Payments” 2012 “Excess Copyright © 2014, Clarence Byrd Inc. 42 Canadian Tax Principles Profit Sharing Plans – Evaluation • In general, no tax advantages • May have motivational benefits • Have been used for income splitting and avoidance of Have CPP and EI payments CPP – 2012 Budget change deals with this. Copyright © 2014, Clarence Byrd Inc. 43 Canadian Tax Principles Transfers Between Plans Tax Free Transfers From RPPs From DPSPs To Different RPP To Different RRSP To Different DPSP To RRSP To RPP To RPP To DPSP To RRIF To RRSP To Spouse: Marriage Breakdown Copyright © 2014, Clarence Byrd Inc. From RRSPs To Spouse: Marriage Breakdown 44 Canadian Tax Principles Retiring Allowances • Total Allowance In Income • Rollover To RRSP (Maximum) – $2,000 For Each Year Prior To 1996 $2,000 – $1,500 For Each Year Prior To 1989 (If No Vested $1,500 Contributions To RPP Or DPSP By Employer) Contributions Copyright © 2014, Clarence Byrd Inc. 45 Canadian Tax Principles Retirement Compensation Arrangements • The Problem – Unregistered Pension Arrangements • Arrangements Defined - ITA 248(1) • Part XI.3 Refundable Tax – Payable On Contributions And Earnings (50%) – Refundable When Paid Out And Taxed • 2012 Budget has added penalties for abuse of RCAs Copyright © 2014, Clarence Byrd Inc. 46 Canadian Tax Principles Salary Deferral Arrangements • The Problem – Arrangements Established To Defer Taxation • The Solution – Tax Employee When Benefits Are Earned Copyright © 2014, Clarence Byrd Inc. 47 Canadian Tax Principles Individual Pension Plans • A defined benefit plan established for a single individual • Increasingly popular • Requires a knowledge of actuarial science Copyright © 2014, Clarence Byrd Inc. 48 Canadian Tax Principles Copyright © 2014, Clarence Byrd Inc. 49...
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This note was uploaded on 09/19/2013 for the course COMM 355 taught by Professor Trancheung during the Fall '10 term at UBC.

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