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Lecture 6

INFO 16029 Lecture Notes - Lecture 6: Registered Retirement Savings Plan, Old Age Security, Canada Pension PlanPremium

13 pages72 viewsFall 2017

Department
Faculty of Applied Science & Technology
Course Code
INFO 16029
Professor
Boom
Lecture
6

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Finance 17-04-03
Notetakers: Andrea & Monique 1
Finance
Monday, April 3, 2017
Last week, we covered a lot, and there were calculations you had to do all about
tax. The more experience you try to get doing your own taxes, the easier it gets.
You should do your own this year, even if you’re not going to submit it yourself.
Review (slide)
(Reading slide)
We talked about calculating tax: income (all on last week’s notes), deductions to
reduce that income (most common we use in Canada is our RRSP the
contributions we make to our RRSPs are tax deductible for us), credits we might
have (like CPP contributions, basic tax credit, charitable contributions which we
can use now or in the future, tuition for you guys (tuition you can use it or if you
can’t, you can pass it on to someone else who can)).
Tax credits transferable, carry forward use at a future time.
Marginal tax rates vs. average tax rates we used those to calculate per income
band that portion gets confusing for people sometimes, so make sure you redo
it if you don’t understand it, to figure out how your tax is calculated. If you still
have trouble, let me know.
Taxation of mutual fund corporations the big thing from that perspective is if
you’re part of a corporation, you can move from one type of MF to another
without having to worry about tax consequences. You could move from a
balanced fund to a more aggressive fund, let’s say, and it’s not as if you sold it. If
you’re part of a MF trust, if you switched, you would have to pretend like you sold
it, claim the gains, and buy the more aggressive one. So that deemed disposition
can have a big effect on people, especially if it’s for the entire portfolio.
In this unit you will learn about: (slide)
Government Pension Plans
We need to understand a bit how these work. Every paycheck, CPP comes off.
Employer Pension Plans (slide)
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Finance 17-04-03
Notetakers: Andrea & Monique 2
This applies to you now. Many companies you’re looking to be employed with
will have a pension plan. This portion is important to understand when you join
a company, so you know what you’re looking at.
Registered Retirement Savings Plan (RRSP)
This is your own retirement savings plan.
Government Plans (slide)
There are two basic ones, and they have basic components within them.
Old Age Security OAS
There are four components of it that we’re going to look at. The first one is
actually called Old Age Security. There is a guaranteed income supplement,
which helps people with an incredibly low income, so that we’re not putting our
elderly out on the streets. We supplement that in their retirement.
Allowance then there are other allowances.
Then there are allowances for survivors or dependents as the case may be.
Canada Pension Plan (CPP)/Quebec Pension Plan (QPP)
This is what you see coming off your paycheck, and then what happens from a
survivor standpoint, death benefits, disability, benefits those kinds of things.
Old Age Security Program (slide)
This operates through our own taxes that we pay. If someone meets the criteria,
they qualify for OAS. There are three pieces: you have to be 65 or older. You
can’t be 30 and decide to stop working and get this. You have to have a residency
criteria you have to have lived in Canada for a minimum of 10 years after the
age of 18 (because after 18, you’re presumably contributing to society, whereas a
child does not). To get the maximum benefit, if you’ve leaved and worked in
Canada for 40 years after the age of 18, you’ll get the full benefit. Means test
this doesn’t automatically go to every senior citizen it goes to those that have an
income less than $73,756 you don’t need to know the exact number, but know
there is a threshold, and that we are supporting the ones that don’t make very
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Finance 17-04-03
Notetakers: Andrea & Monique 3
much. If you’re 65 or older and you’re making $2 million a year, we as tax payers
don’t need to support them. That’s the idea behind it.
So age, residency and means.
If someone has saved very well and are getting income from their investments,
for every dollar they earn, one dollar gets deducted from OAS. Again, it’s really
designed to help low-income pensioners. That’s the OAS portion of the OAS.
Guaranteed Income Supplement this bring the lowest incomes up to enough to
pay for things like rent.
Allowance and allowance for survivor let’s say it’s a married couple, they
weren’t making a lot of money, so they were receiving OAS and an income
supplement, they probably aren’t in a great financial position, so if something
happens to one of the spouses and they die, the survivor has to work with a
reduced income if that other person’s pension stops. To help support the
survivors, we have allowance programs in place where their husband’s old
pension, a portion still comes to them. It helps the dependents who are surviving
the one who passed.
Canada Pension Plan (CPP/QPP) (slide)
This is the one you see deducted all the time. This one also has eligibility criteria,
but it’s a lot more lenient. If you have worked and paid taxes in this country,
you’re paying for CPP each paycheck. That means you have contributed to the
program.
The next one is that you have to apply for the benefit. No one comes knocking
on your door it’s up to you to apply for it. Part of the reason, you must be at
least 60 years old to receive this. You can’t just be 30 and not want to work
anymore. Part of the reason you have to apply for the benefit is that not everyone
wants to receive it at the same age. Some people want to retire early and start
receiving their pension early, which you can do as long as you’re 60, but the
pension amount you get is reduced. You’ll get the same amount of money over a
larger period of time; that’s the idea.
Some people choose at 65, then they’ll get their regular pension. Some people
are doing well on their investments, or they’re still working, and they don’t’ want
their CPP because it will be a high marginal rate, or they just don’t need it. They
can wait until they are, say, 70, and then it is increased each month. That’s why
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