2007 - 2008 Fiscal year
Deadline for Contributing to an RRSP
Since 2008 is a leap year, the deadline for RRSP contributions that can be deducted for 2007 is Friday, February 29 2008.
Basic personal amount
- The annual basic personal amount at the federal level for 2007 is $9,600. This amount increases to $16,490 regarding a child or grandchild who is physically or mentally infirm.
- Still at the federal level, the annual basic personal amount for a spouse or common-law partner for 2007 is $9,600, minus any income earned by the spouse or partner
- One of the criteria for determining whether a child or grandchild is financially dependent on the taxpayer is to ensure his/her net income for the year preceding the year of death did not exceed the basic personal amount for that year. Accordingly, for a death in 2007, the basic personal amount of $8,839 for 2006 is used ($9,600 for a death in 2008). This amount increases for a dependent child or grandchild who is physically or mentally infirm. Thus, for a death in 2007, the amount considered is $15,580 ($16,490 for a death in 2008).
Increase in Annual RRSP Contribution Room
- The RRSP contribution limit for 2007 is $19,000, and $20,000 for 2008.
- For more information on your RRSP contribution limit, contact the Canada Revenue Agency (CRA) at 1-800-267-6999.
Pension income credit
In Quebec:
- The tax credit for pension income has been increased.
- The maximum amount of pension income eligible for this non-refundable tax credit was increased from $1,000 to $1,500, starting in the 2007 tax year.
Federally:
- The maximum amount of pension income eligible for this non-refundable tax credit is $2,000.
Main changes stemming from the March 19, 2007 federal budget and the 2007 Economic Statement of October 30, 2007, presented by Mr. Jim Flaherty, Canada's Minister of Finance.
Age limit for maturing RRSPs, RPPs and DPSPs
As of the 2007 taxation year, the conversion age for Registered Retirement Savings Plans (RRSPs), Registered Pension Plans (RPPs) and Deferred Profit Sharing Plans (DPSPs) increased to 71 years of age from 69 years of age.
This measure will benefit individuals who turned or will be turning 69, 70 or 71 in 2007 or thereafter. If contribution room is available, a 70-year-old individual will be allowed to make RRSP contributions in 2007 and 2008 and a 71-year-old in 2007.
The requirement that a specified minimum amount be withdrawn from a RRIF each year has been waived for 2007 and 2008 in the case of RRIF annuitants who turned 70 in 2007. For RRIF annuitants who turned 71 in 2007, this requirement is waived for 2007 only.
Qualified registered pension plan investments
Since March 19, 2007, registered plans may include any debt obligation that has an investment grade rating and that is part of a minimum $25 million issuance as well as any security (other than futures contracts) that is listed on a designated stock exchange.
Pension income splitting
This budget confirms the enactment of the new pension income splitting mechanism announced on October 31, 2006. This measure allows pensioners to allocate to their spouse or common-law partner an amount of up to one-half of their eligible pension income and applies as of the 2007 taxation year.
Individuals receiving an eligible pension income may allocate to their spouse or common-law up to 50% of this income in the calculation of their taxable income, both at the federal and Quebec levels.
Eligible pension income corresponds to the income eligible for the federal pension income credit.
For an individual aged 65 or over, eligible pension income includes:
- life annuity payments received under an RPP;
- payments received under a RRIF or a LIF;
- annuity payments (but not withdrawals) 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.
For an individual under 65 years of age, this eligible pension income includes:
- 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;
- Lump-sum RRSP withdrawals.
This measure will apply when annual income tax returns are filed. As such, the amount allocated will be deducted from the net income of the person who actually received the pension income and used to calculate the net income of his/her spouse or common-law partner.
At the federal level, this allocation could have a beneficial effect on the pension income credit, the age credit and Old Age Security entitlements which are based on individual income.
In Quebec, this allocation could allow the spouse or common-law partner to whom the income is allocated to claim a pension income credit subject to the usual limitations. In view of this splitting, both spouses or common-law partners could therefore take advantage of the federal and Quebec pension income credit.
Both spouses or common-law partners must agree to this pension income splitting allocation for the year in question. This agreement applies to only one year at a time, and this splitting is reported on the individuals' income tax returns.
For Quebec tax purposes, the spouses or common-law partners are not obliged to make the same decision regarding pension income splitting and the split income amount as they did at the federal level, subject to the prescribed 50% eligible income maximum.
Revenu Québec has specified that the allocated pension income will be deducted in computing total income or added to this amount for the purposes of establishing the contribution to the health services fund.
This ministry further indicated that the person who is splitting his/her pension income will be held jointly responsible for taxes and health services fund contributions payable by the spouse or common-law partner to whom they have allocated this income.
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.