Tax Tips

What is Pension Adjustment

A pension adjustment (PA) is the amount of pension benefits or savings a person accumulates in a year from their retirement savings plan. This includes contributions from their employer or themselves. It's important because it affects how much a person can contribute to their Registered Retirement Savings Plan (RRSP) or Pooled Registered Pension Plan (PRPP) the following year. The PA cannot be negative and may be zero if there are no pension benefits for that year. If someone is part of a specific pension plan that increases their past benefits, then a past service pension adjustment (PSPA) is calculated to reflect these added benefits. Both the PA and PSPA impact the amount one can contribute to their RRSP or PRPP.

About First Time Homebuyer Plan and Tax Credit (HBP/HBTC)

Q: I owned a home before, but currently don't own one and haven't purchased in the past five years. Can I participate in the Home Buyers' Plan (HBP) and claim the Home Buyers' Tax Credit (HBTC)?"

A: Yes, as long as you currently don't own a home and haven't purchased one in the past five years, you may be eligible to participate in the Home Buyers' Plan (HBP) and withdraw up to $35,000 from your RRSP for a down payment on a qualifying home. For couples, if both spouses or common-law partners are first-time home buyers and have RRSPs, each can withdraw the maximum amount.

Additionally, as a first-time home buyer meeting the specified criteria, you can claim the Home Buyers' Tax Credit (HBTC) to receive a tax credit of up to $1,500, subject to the conditions set by the Canada Revenue Agency (CRA).

Q: What is the significance of the 89-day waiting period in the Home Buyer's Plan (HBP)? 

A: The 89-day waiting period is designed to prevent individuals from depositing funds specifically for a home down payment into their registered retirement savings plans (RRSPs), claiming a tax deduction, and then promptly withdrawing the same funds to purchase a home. This waiting period ensures that the HBP is used for its intended purpose of utilizing existing RRSP funds for a home purchase.

Q: How does the Home Buyer's Plan (HBP) ensure that funds are used for the intended purpose? 

A: The HBP implements an 89-day waiting period to discourage individuals from using the plan for short-term financial gains. This waiting period aims to prevent taxpayers from artificially inflating their RRSP balances for the sole purpose of utilizing the HBP for a home purchase, ensuring the plan's proper utilization.

Q: Do RRSP contributions impact the Home Buyers' Plan (HBP) withdrawal and repayments?

A: Yes, contributions made to a spousal or common-law partner's RRSP can affect the deduction eligibility when the annuitant spouse or partner makes a Home Buyers' Plan withdrawal.

Q: How do repayments work under the Home Buyers' Plan (HBP)?

A: Participants in the HBP must start repayments within sixty days of the second year after the withdrawal. The amount withdrawn must be repaid within fifteen years, with the minimum repayment each year determined by the outstanding balance. Repayments can be made to any RRSP, PRPP, or SPP of which the taxpayer is the annuitant, and the taxpayer can contribute more than the minimum or repay the full amount at any time.

If a taxpayer repays less than the required amount, the shortfall is reported as income. Repaying more than the minimum reduces the outstanding balance, resulting in lower annual payments in the future.

About Registered Disability Savings Plans (RDSPs)

Q: What are the key features of a Registered Disability Savings Plan (RDSP) in Canada?

A: The RDSP is a specialized long-term savings plan designed for individuals with disabilities. It allows for contributions from the beneficiary, family members, or other contributors, with tax-deferred investment income. The plan's notable aspects include the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB), which provide additional financial support based on family income and contributions. Withdrawals from the RDSP are considered income for the beneficiary in the year they are received. The RDSP serves as a crucial tool for promoting long-term financial security and enhancing the quality of life for individuals with disabilities and their families in Canada.

Q: Can transfers be made from a beneficiary's Registered Education Savings Plan (RESP) to a Registered Disability Savings Plan (RDSP)?

A: Transfers from an RESP to an RDSP are allowed under certain conditions, including if the beneficiary has a severe and prolonged mental impairment hindering their pursuit of post-secondary education, if the RESP has existed for at least 10 years with beneficiaries over 21 years not pursuing post-secondary education, or if the RESP has existed for over 35 years.

Q: How are the transferred amounts treated for tax purposes?

A: The portion of the transfer related to accumulated income payments is not subject to income tax or the additional 20% penalty tax typically applied to accumulated income payments. Contributions are returned to the subscriber on a tax-free basis. The portion related to Canada Education Savings Grants and Canada Learning Bonds in the RESP is repaid to Employment and Social Development Canada.

Q: Is it possible to achieve a tax-deferred rollover of property from one RDSP to another?

A: Yes, a tax-deferred rollover of property is permitted when funds are transferred from one RDSP to another, as long as the beneficial ownership remains unchanged.

About  the Lifelong Learning Plan (LLP) 

Q: What is the Lifelong Learning Plan (LLP) offered by the Canada Revenue Agency (CRA)?

A: The Lifelong Learning Plan (LLP) is a program that allows individuals to withdraw funds from their registered retirement savings plans (RRSPs) to finance full-time training or education for themselves, their spouses, or common-law partners. This plan aims to support continuous learning and skill development for personal and career growth.

Q: What are the key features of the Lifelong Learning Plan (LLP)?

A: The LLP enables participants to withdraw a specific maximum amount without including it in their taxable income, provided they meet the eligibility requirements outlined by the CRA. Participants are required to repay the withdrawn amount back into their RRSPs within a 10-year period, starting the fifth year after the initial withdrawal.

Q: How does the Lifelong Learning Plan (LLP) benefit individuals?

A: The LLP provides individuals with an opportunity to finance their education or training without incurring immediate tax consequences. It allows for the advancement of personal and professional skills while ensuring the effective management of financial resources through the repayment structure outlined by the program.

Q: What are the withdrawal limits under the Lifelong Learning Plan (LLP) for RRSPs? 

A: Under the Lifelong Learning Plan (LLP), the maximum amount allowed to be withdrawn from an RRSP in any one year is $10,000. Over a four-calendar-year period, the maximum total withdrawal limit is $20,000.