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BUS 329 (10)
Chapter 10

BUS 329 Chapter Notes - Chapter 10: Registered Retirement Income Fund, Tax Deduction, Savings Account

Business Administration
Course Code
BUS 329
Susan Bubra

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Chapter 10
Retirement Savings and Other Special Income Arrangements
Retirement Savings Vehicles
- Registered retirement saving plans (RRSP) all individuals
- Registered pension plans (RPP) employees only
- Registered retirement income fund (RRIF) all individuals
- Tax-free savings account (TFSA) all individuals
Tax Deferred Retirement Savings
- Contributions
o How much money did you put in today?
o Will receive a tax deduction as soon as you contribute
Tax Free Accumulation
- Contribute $5,000 for 30 years at 10% to RRSP
o $822,470 before taking out
o $452,359 after taxes at 45% (assume if in the highest tax rate)
- Save $2,750 ($5,000 after taxes) for 30 years at 5.5% (net)
o No deduction and pay taxes all along
o $199,198
Other Considerations
- Make contributions as early as possible
o Can generate an extra 10% in plan
- Tax savings at retirement
o Depeds o the idiidual’s aket at etieet s. the aket he otiutio is
Types of RPP Plans
- Defined benefit
o Employer agrees to provide benefit of some peret of eployee’s aeage eaigs fo
each year of service
o Employer is at risk
Employee will get a fixed amount at retirement; therefore, employer must
calculate how much they have to contribute for the guarantee amount
Other individuals
Highest tax rate
Contributions plus
Earnings accumulated
tax free
Taxable withdrawals
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- Defined contribution (money purchase)
o Employer agrees to provide specified contribution
o Benefit is based on amount of contributions
o Employee is at risk
Registered Retirement Saving Plans
- Deduct contributions
- Tax free earnings
- Taxed on withdrawal
- Must registered at qualified financial institutions
- Investment options
o Managed plans (90%)
o Self-administered plans
o Investment must be qualified as RRSP investment
- Capital gains and dividends
o Lose favorable tax treatment
o Taxed at regular tax rates
Interest 100%
Capital gain 50%
Dividend 66%
o You would want interest the most in RRSP, because it is taxed the most
- Financing costs not deductible
o The interest on loan is not deductible, because the income becomes deferred
o If you have a RRSP loan, the refund, such as tax deductible, will be tringered
o Feb 28/29 is the last day of getting a loan
Overview of the System
- RRSP deduction limit ITA 146(1)
A + B
o A balance at the end of last year
o B lesser of
RRSP dollar limit for current year ($25,370)
18% of earned income for previous year, reduced by the PA of previous year
ITA 146(1)
Employment income
Business income (loss)
Disability payments
Royalties (if creator of assets; wrote a book or song)
Net rental income (loss)
Net research grants received
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