• The Importance of Proper Retirement Planning 
• Where to Find Information on RRSP Contribution Amounts  
• Maximize Your Tax Savings Via RRSP Contributions  
• How Careful Planning Can Reduce Taxes at Retirement and Death  
• Spousal RRSP Withdrawals 
• You and Your Employer  
• Home Buyers' Plan (HBP) Repayments
• I need advice
   

The Importance of Proper Retirement Planning
 

• Most people used to work for 45 years (from age 20 to 65) just to set aside enough for ten years of retirement (age 65 to 75).  Nowadays, many of us work 30 years or so (age 25 to 55) to earn enough for 30 years of retirement (age 55 to 85).  As you can see, it's vital to start retirement planning as early as possible!
   

Where to Find Information on RRSP Contribution Amounts
 

• To make the most of your RRSP and avoid being penalized for excess contributions, check your contribution room. In case of doubt, you can:
  
   
  • consult the notice of assessment issued by the Canada Revenue Agency (CRA) for the previous year;
     
  • contact CRA at 1 800 267-6999 (option 4), or view your account on-line.
     

Maximize Your Tax Savings Via RRSP Contributions
 

• Make the most of any unused contributions. An RRSP is still the best way of lightening your tax load; what's more, it can provide impressive tax-free growth, and, if you manage your finances sensibly, help maximize your tax deductions while your income is at its highest.
  
  It is neither mandatory nor necessarily profitable to deduct all RRSP contributions made in a given year from your taxable income. Rather, you should deduct only the amount that maximizes tax savings based on your marginal tax rate.
  
  For example, if you are planning to dispose of certain assets that will result in a capital gain and increase your taxable income and the income tax you have to pay, it could be a really good idea to defer your RRSP contribution and to use it in a year where your taxable income will be higher. Here are some of the potential advantages of such a strategy.
  
  Example:
  Megan, who lives in Ontario, has unused contribution room of $35,000 (as per her federal notice of assessment). After selling off some assets, she deposits $20,000 into her RRSP. Her taxable income is $47,000.
   

Tax saving difference	First $10,000	Remaining  $10,000	Total
Tax savings if total deduction is used the first year	$3,826	$3,203	$6,987
Tax savings if deduction is staggered over two years	$3,826	$3,828	$7,6526
Difference	$0	$665	$665

(This example is based on the rates and the basic personal amount in force in March 2007.)

• In a similar vein, make sure to avail yourself of all non-refundable tax credits before using up your contribution room. Like RRSP contributions, these credits can be used to reduce income tax. They are called "non-refundable" because, even if their total is higher than the amount of federal and provincial tax owing, the difference is not refunded.
   
• You can also make an over-contribution without being penalized.
  
  Under the Income Tax Act, taxpayers age 18 and over are entitled to maintain a maximum excess contribution of $2,000 in their RRSPs. If possible, put this sum into your RRSP; this investment will generate non-taxable profits. It's an "advance contribution" you can deduct in the future.
   

Minimum age for contributing to an RRSP
 

• There is no minimum age for contributing to an RRSP; the only condition is that you have earned income, as defined by law, or income eligible for transfer into such a plan. This means that someone under 18 earning employment income can contribute to an RRSP without having to request a tax deduction the year the contribution is made.
   

• You reduce your net income and obtain a tax savings
   
• Net income is important, because it's used to calculate tax credits and social-program eligibility.
  
  In many cases, refundable and non-refundable tax credits are calculated based, not only on your net income, but on your spouse's net income as well. As this may reduce or eliminate many of the tax credits and social-program benefits you might otherwise receive, many people feel that the actual marginal tax rate for families is significantly higher than that shown in tax tables.
   
• Contributing to an RRSP can relieve your tax burden and help you take advantage of tax credits to which you would otherwise not be entitled.
   
• In addition to the tax savings owing to the fact that RRSP contributions are deductible, remember that the tax-deferred investment income accumulation of such plans means that your money can grow much more quickly.
  
       

How Careful Planning Can Reduce Taxes at Retirement and Death
 
Splitting certain kinds of retirement income

Starting in 2007, couples will be able to split up to 50% of certain types of retirement income, both at the federal level and in Quebec.
 
For an individual aged 65 or over, pension 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) or a life income fund (LIF); 
   
• annuity payments (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;
   
• income accrued under a non-prescribed annuity contract.
   

• life annuity payments received under an RPP;
   
• the following amounts received as a result of the death of the individual's spouse or common-law partner:
  
   
  • payments received under a RRIF or a LIF;
     
  • annuity payments received under an RRSP; 
     
  • annuity payments received under a DPSP
     
  • the income portion of a prescribed annuity contract;
     
  • income accrued under a non-prescribed annuity contract.
    
     

Eligibility for this income splitting is based on the age of the pensioner, and not that of the spouse or common-law partner to whom the income is allocated.
 
Eligible pension income does not include the following amounts: 
 

• Old Age Security (OAS)
  
• Guaranteed Income Supplement (GIS)
  
• Quebec Pension Plan and Canada Pension Plan benefits
  
• RRSP withdrawals
  
• Any other income, such as dividends, interest, rental income, etc.
  
  

The big winners in the implementation of this new measure are couples with a single eligible pension income where the spouse or common-law partner without a pension income is a low wage earner.

Now that income splitting between spouses is possible, does it still make sense to contribute to a spousal RRSP?
 

Spousal RRSP

To decide whether or not to contribute to a spousal RRSP, you have to consider the source and the amount of all of the income that each spouse will be earning at retirement. If you anticipate an unequal division of income, even after income splitting, the spouse with the higher income might want to consider contributing to a spousal RRSP for the spouse with the lower income.

 In Quebec

In terms of the risk related to contributing to a spousal RRSP in the case of divorce or death, it should be pointed out that all the sums invested in an RRSP are part of the family patrimony (asset) of a legally married couple. In this way, the amounts invested in an RRSP by each of the spouses will be equally distributed in the case of divorce or death. However, the sharing of the family patrimony does not apply to common-law partners. Therefore, in the event they separate, the sums invested in a spousal RRSP belong to that partner.

To  prevent such a situation, when a common-law partner contributes to the other partner's RRSP, they should reach an agreement which, in case of separation, will set out the way their assets will be divided up, including the RRSP to which the other partner contributed.
 

On your 71 birthday

If you or your spouse is turning 71 this year, you have one last chance to take advantage of any unused contribution room accumulated since 1991. You can claim your deduction for the current year or defer it to future years when your taxable income is higher, even if your RRSP is rolled over to a RRIF or another retirement product.

Last will and beneficiaries
 

• Take the time to draft your will now: this will reduce your final tax bill and avoid letting the courts decide how your estate is to be divided.
   
• If you're contributing to an RRSP issued by an insurer and you have designated a beneficiary, plan proceeds are exempted from your estate and it will not be subject to estate administration tax.* Furthermore, when you die, the capital will go to the beneficiary you designated, unless you subsequently revoke the designation.
  
  * A probate for a notarized will or estate capital is not required in Quebec.
  
  If your designated beneficiary is not your spouse or dependent child, tax on the RRSP will be taken out of your estate, unless your will specifies that the beneficiary is to pay the tax.
  
  If you have not designated a specific beneficiary (that is, if you have simply designated your estate or legal heirs), the RRSP will be included in your estate in accordance with the provisions of your will, or, if you have not left a will, in accordance to the laws of your province.
   

Death
 

• On the death of your spouse,  you could reduce the tax bill by contributing to a spousal RRSP.  You could also reduce the estate's tax bill by establishing a surviving spouse's RRSP and having your deceased spouse's unused contribution room transferred to it.
   

Spousal RRSP Withdrawals
 
The "three-year rule"
 

• The "three-year rule" applies to spousal RRSP withdrawals made in the period (three consecutive periods ending December 31) following contributions to this RRSP.  It determines whether the RRSP holder or the contributor will be taxed on such withdrawals.
  
  Example:
  On December 28, 2007, Andrew contributes $5,000 to an RRSP for his wife Marilyn, following which he makes no further contributions. On January 4, 2010, Marilyn withdraws a total of $4,000 from this RRSP.  Who will be taxed on this amount?